An Introduction to the Stock Market

Every day millions of dollars exchange hands in order to create a profit for some of the people that are "trading" their money. These people trade money in all sorts of ways, but altogether they are generally referred to as the stock market. The stock market is an enormous wealth building tool because it allows you to make (or lose) money in a relatively effortless manor. That means instead of trading your time for money, you are able to realize a profit without trading your time for work. Just how does this wonderful wealth building tool work?

The most basic part of the stock market is the actual stocks. Stocks small parts, or shares, of a company that sells them. If a company wants to generate money to undertake new types of business, then they split their company into millions of parts and sell them for money. Stock can also be referred to as equities or securities, and because there are only a set limit of shares available for an individual company the price will go up and down as the company becomes more popular. Stocks are essentially worth what the people investing in the company think that they are worth; because there is a set supply, the demand of investors determines the selling price of the stocks.

The stock market also consists of bonds. Unlike stocks, which are small shares of equity, bonds are small shares of debt. That is, somewhat like an I owe you, but there's no need to worry with bonds because if the company goes bottom up then you will be entitled to parts of the company. Bonds normally have a set "maturation date" at which the company's debt will be repaid to the investor with interest. If the investor does not want to wait this long, then you can sell it to another investor. In this manor the price of bonds fluctuates just as the price of stocks do, but because the bond is set to be paid off at a set time in the future the price of bonds generally do not fluctuate as much as the price of stock.

Another part of the stock market is what professionals refer to as the commodities market, or futures. This part of the stock market allows investors to invest in goods at a future time. The futures market would allow a farmer that thought the price of pig feed would go up to purchase pig food at current prices for use in the future. Investors refer to this action as hedging, or the act of securing future business supplies at current prices. Other investors may think that the price of pig feed will go up significantly, which would cause them to buy significant amounts of pig feed. This type of investing is called speculative, which is when investors are trying making profit off of the increase in a good.

There is far more to the stock market than that, but that is a start that should get you on the track to investing. It is probably best to practice in "paper" investing, or investing on paper without money before you decide to commit money to the stock market. If you want to become a pro in the stock market there are a number of books available to you (no, a tie is not required), if not there are a great number of investing professionals that can help you decide what is best for you.