Stocks are pieces of a company that you can own. Selling stocks is what allows companies to raise money to pay for things like new factories and hiring more workers so they can grow.
Without stocks, companies like McDonald’s would still be little roadside restaurants. It takes money from investors, people who buy the stocks, for a company to build its business. When people buy these pieces, the company gets money.
Of course, there have been times in history when stocks have not been successful. When a company fails or the stock market goes down, the market value of a stock also goes down and the investor loses money. This is why investing is riskier than saving.
How do stocks work?
- The Stock Market: The stock market, or “exchange,” is an official place where investors can buy or sell stocks. Think of it like a giant flea market where people are bargaining to buy and sell their goods. There is no set price, but items have more or less value on different days. The stock market is like an auction. If people feel good about how a stock is doing, more people will want to buy it and the price can increase. If people don’t feel good about a stock, they will sell it and the price will go down. That’s why it is important to plan to invest for the long–term and be sure not to make emotional buying and selling decisions without thinking.
- Stock Brokers/Financial Planners: One option is to hire a certified financial planner or a professional stock broker—someone who is trained to manage other people’s money. This person will go to the market to do business and manage your money for you. When you buy or sell a stock, your broker gets part of that price. This is called commission. Not just anyone can buy or sell at the stock market. You need a professional who is officially allowed to be your broker.
- Online Investing: This is another way to do it. If you want to work independently, you can open an online account to buy and sell. You will have to research your options and make your trades without help from a professional. Some people like to manage some of their own investments this way, and use a broker for the rest of their investments.
- Buying and selling stocks: To buy stock, you have to go through a few steps. If you work with a broker, she/he will buy or sell stock for your account and tell you if the trade was a profit or a loss.