Introducing the Stock Market

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Introducing the Stock Market

• Now that you know about saving and investing, you
  are ready to learn about the stock market.

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Turning Savings into Capital
If your financial goal is to make money from your
money, the stock market may be the perfect way
for you to meet your goals. You will want to sta
rt with a nest egg you built in your savings
account. Use it to set up an account with a
broker. The account with your broker is your
capital. Now you need to learn what you can do wi
th it.
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Companies need Capital
Companies need capital money to buy buildings,
machines, and raw materials to create their
products or services. Companies raise capital by
selling ownership in the company. The ownership
of a company is its stock. A share is a piece o
f company stock, or ownership. A person who owns
one or more shares of stock in a company is
called a stockholder. Stockholders share in the p
rofits of a company and vote in how the company
is run.
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Investors have capital.
Investors are people like you and me who have
saved some money and want it to grow.
Investors use their money to buy ownership in a
company. The investors money become capital for
the company. The company pays the investor part
of its profits for the use of the capital.
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Meet at the Stock Exchange
Companies that need capital and investors who
have capital come together at a Stock Exchange.
There are many Stock Exchanges around the world.
In a Stock Exchange, investors get together to
buy and sell stock in companies to each other.
Trading is the constant buying and selling of
stock. Trading causes the value of a share of
stock to change. The value of a share of stock
is its price. The price of a stock can change
from minute to minute.
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Profiting from Stocks
Investors can make a profit from owning stock
If the company makes a profit and distributes a
dividend to each stockholder. The dividend may be
cash, or more shares of stock in the company.
Investors can make a profit from trading or
buying and selling the stock If the price of th
e stock goes up and the investor sells it for
more than he paid for it. The investor must sell
the stock to earn the profit.
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Stocks Market Losses
Investors can lose when a company goes bankrupt.
Companies big and small fail every year. If the
company you own stock in goes bankrupt, you lose
what you invested in the company.
Investors can lose when the value of a stock goes
down. If the price of the stock goes down and you
sell the stock, you take a loss on the
difference between what you paid for it and what
you sold it for. You only have a loss if you sell
the stock.
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Owning Stock
Most investors want to convert their savings to
capital and let it grow in value as the company
grows profitably. Many investors buy a stock to
hold it for many years. Business cycles cause th
e price of the stock to go up and down, but over
time, successful companies stock goes up in
price. Owning a stock is the only way to profit w
hen dividends are distributed.
The value of the stock you own usually increases
when the company declares a stock split and you
earn more shares.