How exactly does the stock market work?

Question

I been investing for many years and I dont know how this thing works.

Say a company has 10 million shares at 10 dollars a share now on Wall street they are buying and selling shares a broker there is so if I want to buy I offer a price say market and he does it for me or same with sale. But what drives the price up or down. say someone buys 1 million of those 10 million shares what happens to the price. does it go up 10% to 11 or is it a bidding war or what I know when people are buying the stocks go up but like whats the % if say the over all maket has 12 trillion in it and 1.2 trillion comes in do the previous owners get 10% return. Similarly on the sell I dont understand that either. When they say the market is valued at 12 trillion does that mean if everybody sold shares on the same day they get all that money or is it really like only valued at 12 but actually worth less. Can some one explain this basic simple fact I never learned

Answer 1

The short answer is that supply and demand controls a stock's price. If a lot of shares are suddenly up for sale, sellers will choose a price at which they are willing to sell. If no one buys, they can either take their shares off the market, or lower their "ask" price.

If a lot of people want to buy a stock, but no one is selling at a particular price, they can raise their "bid". The higher the bid goes, more holders of the stock will decide to sell.

That is the short answer. You should read "The Little Book that Beats the Market" for more info.

For investing ideas, see what the best traders are buying and selling at http://www.top10traders.com - this is a free site that lets you create a portfolio of stocks with $100,000 in "play" money. Each day the site ranks the best performing portfolios, so you can see how your picks perform compared to other investors. You can also read posts on investing from the best traders, as well as share your own investing ideas. There is also a charting feature , so you can see how your portfolio performs compared to the S&P 500.

Here are this month's best traders:

http://www.top10traders.com/Top10Standings.aspx

Good luck.

Answer 2

The first step in knowing how to make money in the stock market is knowing how not to lose it all. If you ignore this one rule, you'll lose all your money in the stock market and become one of those bitter skeptics that complains that the stock market is "rigged". Go for small daily and weekly gains, not big gains. You should never buy a stock because you think it is going to be a HUGE winner. Rookies focus on how much money they can make. Professionals focus on how to limit losses. It is amazing how quickly your trading account will build up over time just by making a little bit every week.

Answer 3

Stock tradig is like an Auction trading where you have a bid and ask mechanism in place. The buyer bids and the seller asks and if you have a match on bid and ask then a transacation take place at the contracted price which may be higher or lower. Last part of your question is hypothetical since such a situation is only in ones imagination. There are circuit breakers fitted in stock market through regulations which prevents such situaitons. Also it is stocks of corporations that are traded which has entity assumption meaning perpetual existense, so selling of all its shares in one stretch and somebody buying them along simultaneously is unthinkable is only figments of ones imagination or something like a celluloid catstrophy only movies can be made on it not reality in life.

Answer 4

Stock Market like any market is a trading place where price is determined by factors of supply & demand. Apart from fundamental factors affecting the prices of shares in the short term it is the herd mentality which takes over . That is why operators are called bulls & bears. Sometimes markets goes up charged by bulls & sometimes goes down pushed by bears. In such times the fluctuation in prices have nothing to do with underlying fundamentals. The market looks more like a ponzi sceme with each fool looking for a bigger fool.

Answer 5

complicated question....basically this is how it works, if you owned a pencil that you paid $1.00 for, and you sold it to me for $1.25, you would have made $.25, if you sell it to me for ....$.75 you would have lost $.25. it is just a process of trying to buy something and sell it to someone else for more than you paid for it. it can be as simple as that. there are thousands of companies out there to buy stock in and billions and billions of dollars exchange hands each day between buyers and sellers, for the most part they are all trying to sell for more than they paid. you can make investing as complicated or as simple as you like, but that is a simple way to look at it. hope this helps.

Answer 6

Stock exchange
A physical location where trading in listed securities is regularly carried out by qualified members