馃攳
How Does the Stock Market Work? - YouTube
Channel: The Motley Fool
[0]
you may have heard that investing in
[2]
stocks can be a great way to create
[3]
wealth over time and that's certainly
[5]
true but how does the stock market work
[7]
I'm Dylan Lewis from the Motley Fool and
[9]
in this FAQ we're gonna answer that
[11]
question and talk about how you can get
[13]
into the market stocks otherwise known
[20]
as equities or equity securities
[22]
represent ownership interests in
[24]
companies the stocks that are publicly
[26]
traded are available because those
[27]
companies decided to list their shares
[29]
and make them available to public
[30]
investors now stock markets facilitate
[33]
the sale and purchase of these stocks
[35]
between individual investors
[36]
institutional investors and companies
[39]
there are two components of stock
[41]
markets the primary market and the
[43]
secondary market
[44]
okay so first the primary market stocks
[47]
first become publicly traded through a
[48]
process known as an initial public
[50]
offering or IPO this involves the
[53]
companies selling shares or pieces of
[54]
itself to investors in order to raise
[56]
capital and listing their shares on a
[58]
stock exchange this initial sale
[60]
comprises the primary market after that
[63]
you have the secondary market and that's
[65]
after the IPO takes place virtually all
[67]
subsequent stock trades take place
[69]
between investors that is the company is
[72]
not involved stock exchanges such as the
[74]
New York Stock Exchange or the Nasdaq
[76]
facilitate buying and selling of stocks
[78]
between investors the vast majority of
[81]
stock trades take place on the secondary
[83]
markets between investors that means
[85]
that for example if you wanted to buy
[87]
shares of Microsoft and hit the Buy
[89]
button through your brokers website you
[90]
are buying share is that another
[91]
investor has decided to sell not shares
[94]
from Microsoft itself and just to take a
[96]
second to piece it all together
[97]
let's break down these symbols Nasdaq is
[100]
the exchange that shares the Microsoft
[102]
are listed on and MSFT is the ticker
[104]
symbol for the company Microsoft these
[106]
abbreviations are identifiers that help
[108]
avoid confusion and uniquely identify a
[110]
specific exchange and stock
[116]
okay so if investors are constantly
[118]
buying and selling shares on the
[120]
secondary market how our stock price is
[121]
determined
[122]
well the price of a stock is largely
[124]
governed by the basic economic
[125]
principles of supply and demand plain
[127]
and simple
[128]
at any given time there's a maximum
[130]
price someone is willing to pay for a
[131]
certain stock and a minimum price
[133]
someone is willing to sell shares of
[134]
that stock for think of the stock market
[137]
as an auction with some investors
[138]
bidding for the stocks and other
[140]
investors that are willing to sell if
[142]
there's a lot of demand for stock
[143]
investors will buy shares quicker than
[145]
sellers want to get rid of them and the
[147]
price will move higher to reflect that
[148]
on the other hand if more investors are
[150]
selling a stock and buying the market
[152]
price will drop now you might be
[154]
thinking to yourself what if people
[155]
don't want to sell their shares how can
[157]
you buy them in order to ensure that
[160]
there's always a liquid marketplace for
[162]
stocks on an exchange individuals known
[164]
as market makers act as intermediaries
[166]
between buyers and sellers market makers
[168]
buy and hold shares and continually list
[170]
quotes to buy and sell those shares the
[172]
highest offer to buy shares listed from
[174]
the market maker at any given time is
[176]
known as the bid and the lowest offered
[178]
selling price is known as the ask the
[180]
difference between those two is called
[181]
the spread the main reason for using
[183]
market makers as a system as opposed to
[186]
simply letting investors buy and sell
[187]
shares directly between one another is
[189]
to ensure that there's always a buyer to
[191]
match with every seller and vice versa
[193]
if you want to sell a stock you don't
[195]
need to wait until a buyer wants your
[196]
exact number of shares a market maker
[198]
will buy them right away now if you want
[201]
to buy a stock you'll have to do it
[202]
through a broker basically someone that
[204]
is licensed to trade stocks on an
[205]
exchange a broker maybe an actual person
[208]
who will tell you what to buy and sell
[209]
but in today's day and age it's probably
[211]
an online broker that processes each
[213]
transaction electronically when you buy
[215]
a stock here's a simplified version of
[217]
how it works
[218]
you tell your broker what stock you want
[219]
to buy and how many shares you want your
[221]
broker relays that order to the exchange
[223]
and a market maker sells you the shares
[225]
at the current market price then those
[228]
shares are delivered to your account
[229]
you've probably heard statements such as
[231]
the market is up or the stock beat the
[233]
market often when discussing the stock
[236]
market people generalize the stock
[237]
market to a stock index stock indices
[240]
such as the S&P 500 or the Dow Jones
[242]
Industrial Average are a representation
[244]
of the performance of a large group of
[246]
stocks
[247]
but not the entire exchange and are
[249]
often used as a benchmark to compare the
[251]
performance of individual stocks to an
[253]
entire portfolio for example the S&P 500
[256]
index tracks the performance of 500 of
[258]
the largest publicly traded companies in
[260]
the United States indexes are a
[262]
convenient way to discuss an
[263]
approximation of what is happening in
[265]
the stock market but they do not fully
[267]
represent the entire stock market the
[269]
beauty of a stock market index like the
[271]
S&P 500 is that they aren't just a
[273]
measure of how stocks are doing they can
[275]
also be a way for folks that are new to
[276]
investing to easily put their money to
[278]
work thanks to Jack Bogle and Vanguard
[280]
the average investor can buy a fund that
[282]
tracks an index like the S&P 500 and pay
[284]
a tiny fee to do so making it easy and
[287]
cheap to start investing folks that are
[289]
looking to get into the market for the
[290]
first time we recommend doing exactly
[292]
that
[293]
look for an ETF or a mutual fund that
[295]
tracks the S&P 500 and boom you are
[297]
immediately a part owner in 500 of the
[299]
largest publicly traded companies in the
[301]
United States if you're looking for some
[303]
more guidance we have a free investing
[305]
starter kit over at fool.com slash start
[307]
it walks you through all things money
[308]
and investing and it has a five stock
[310]
sampler to get you started again that's
[312]
full calm slash start and if you enjoyed
[314]
the video let me know by liking it and
[316]
hitting the thumbs up button below it
[319]
sounds dumb but it tells YouTube that
[320]
we're doing good stuff over here it
[321]
helps us reach more people and if you
[323]
haven't already subscribe to the channel
[325]
to get more awesome investing content
[327]
like this thanks for tuning in and until
[329]
next time fool on
Most Recent Videos:
You can go back to the homepage right here: Homepage