can someone explain how the stock market works without getting too technical?

Answer 1

Without getting too technical:

How Stocks Are Born:

A lot of companies that do well would like to expand, but they don't have enough money to build a new building or hire new people. What a lot of these companies decide to do is "Go Public."

When a company "Goes Public" they say to the world: We are going to sell you a piece of our company. You can own a percentage of the company an share in our returns. When we do well, your stock will do well, and we will pay you a dividend from time to time as part of profit sharing.

A company goes public with an "Initial Public Offering" of stock also known as an IPO, and usually does this after a bunch of banks get together and figure out how much the company is worth, how much of the company is going to be offered (in terms of percentage) to the public and they set an initial price point.

During the IPO the company sells stock to private persons, or even big banks (like mutual funds and other investment companies) who think the company is going to continue to be profitable. The company takes the money they get from the IPO (in a perfect world) and re-invests it in the business model they have that is making money. In that way, they can build new buildings, expand and make other "Capital" acquisitions to increase the potential profitability of the company.

Stock Exchanges:

A stock market is a place where stocks are routinely traded by investors. A trade starts with an "Ask" price, which means a person says to everyone at the stock exchange, "Hi, I have 500 shares of company XYZ and I want five dollars and fifteen cents a share for them." Now, in the modern world, that information is also relayed via computers to basically the whole planet. Everyone from Etrade to Ameritrade to Scotttrade to hundreds and thousands of private companies sees that "Ask" pop up onto the screen at the stock exchange. So that's what a stock exchange like the New York Stock Exchange (NYSE) really is. It's basically a giant electronic bulletin board.

The next step to a stock trade is a "Bid". A bid tells the world, "Hi, I'd like to purchase 500 shares of stock XYZ and I want to pay five dollars and ten cents a share for it." That is also broadcast to the whole world via the giant electronic bulletin board that is the NYSE. When a bid and an ask price match up, you have a "sale".

Stock Exchange Seats:
Not everyone can get direct access to the NYSE. In fact, the vast majority of trades occur between major corporations acting on behalf of investors. For example: If I want to buy 500 shares of stock XYZ, I'd go through Etrade, which would actually negotiate the price for me and "broker" the deal at the stock exchange. In a real sense, I am giving my money to Etrade and trusting them to give me the stock I asked them to buy. The trade itself will be recorded as happening between Etrade and whatever big company "brokers" that stock for the stockholder. In fact, Etrade could even be BUYING stock from itself if one person using Etrade is selling when another person is buying.

The corporations and people who have seats on the NYSE are in the very privileged position of being trusted to follow through on their trades. Think of it as an infinite credit line. If Etrade says they want to buy $100,000,000 worth of a stock, then the trade executes and there is every expectation that they have the cash to cover the trade.

Trade Window:
There is typically a three day window during which the trade is settled up between the two corporations that are brokering the deal. This timeframe allows the companies to register the trades with whatever company is being traded, and allows the electronic funds transfers to take place.

Stock Trading:
Most stocks are traded based on the estimated future performance of the company. There are a lot of factors that are weighed in determining whether a stock is a "good buy", but it boils down to whether the market as a whole perceives that stock to be doing well. Analysts look at things that are affecting the sector the company is in (for example: housing, electronics, service) and they look at the economy as a whole. These are called macroeconomic factors. Analysts also look at the business model and practices of the company itself, and at the performance of other companies in similar markets to determine whether it is a good buy. These are called microeconomic factors.

When it's all said and done, the stock has a "rating" from a bunch of different organizations and it typically looks like, (Sell, Buy, Strong Buy, Hold). Which basically tells people what their short term strategy with the stock should be.

The major fluctuations in the price of a stock have to do with individual and corporate investors trying to stay one step ahead of the rest of the investors out there. They see change on the horizon, or they see macroeconomic factor that they know influences the stock price and they try to make a trade out ahead of that change in order to realize some profit. This is called "timing the market". When you time the market, you are not buying the stock for what the company is worth so much as for what you think people will think it's worth in the near future.
It's a complicated game, and not for the casual investor.

The better bet for a beginner is to take a look at stocks that have had historically good performance and purchase and hold them. Their value will increase over time by virture of it being a good, stable company.

I'm running a little long in this reply, but I think you get the idea. The stock market is very simple. Trading stocks can be very complicated. Purchasing stocks is very easy (go through a broker like Etrade, or even use an actual stock broker from the phone book). Knowing when to buy, sell and hold your stock will determine whether you make money or lose it.

Buy low, sell high?

How do you know when it's stopped going low?
How do you know whether it's going to keep going higher?

If you can answer those questions, you'll be doing very well.

Enjoy!

Answer 2

Penny stocks are loosely categorized companies with share prices of below $5 and with market caps of under $200 million. They are sometimes referred to as "the slot machines of the equity market" because of the money involved. There may be a good place for penny stocks in the portfolio of an experienced, advanced investor, however, if you follow this guide you will learn the most efficient strategies https://tr.im/ed075

Answer 3

The best way for you to get a general and basic knowledge of the stock market is to go to www.wsj.com and there is a link in there for educators. It has everything from the history to the current. This is what I would do.

Answer 4

Demand and supply. If many people want to buy a stock it goosee up. If many people want to sell a stock it goos down

Answer 5

Companies need money (for whatever purpose) so they sell of parts of their company so that the public can own it. With the extra money they can invest in things, build new stores for example, etc.

If you buy or sell, you're trading ownership of the various companies.

Answer 6

Open a brokerage account at Scottrade with at least $500.00 and then drop me a line and you will get it in a hearbeat.

Top 4 Answerer in Business & Finance. (Vote for me)

Answer 7

it deals in buying and selling of shares and shares are small parts of the company held by different people

Answer 8

Buy low / Sell High

Answer 9

u buy, u sell, u trade, u go broke, or u make it rich