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How the Stock Market Works

How the Stock Market Works

Are you familiar with the dating app Tinder? It lets you view photos of people and slide their photo left or right, depending on if you like them or not.

So how is the stock market like Tinder?

For both, you have a large group of people coming together and they are all evaluating a limited number of things. On Tinder, there are a limited number of photos that people are clamoring over. In the stock market, there are a limited number of stocks available to investors. They are both beauty pageants.

The stock market is just like any market. It’s a place where people can come together to buy and sell things. In this case, it is shares of stock. Maybe you inherited some stock and now you want to sell it. Well, that’s what the stock market is all about. It’s the place to go where people who want to sell shares hook up with people who want to buy shares.

So if you are a buyer, you go there and you can buy shares of stock. If you are a seller, you go there and you can sell your shares of stock. If a lot of people want the same stock, the price goes up. If everyone wants to sell the same stock, the price goes down. It’s really nothing more than connecting buyers with sellers.

A common misconception is that when you buy shares of stock, you are buying them directly from the company.

For example, when I buy Apple stock, the thought is I’m buying them from Apple, the company. Not so. I’m actually buying them from some other person. For example, when I buy 10 shares of Apple stock, there is someone else out there who has sold 10 shares of Apple stock.

There is also a bond market, an options market, a futures market, a commodities market, etc. They all work the same. They simply connect buyers with sellers.

In the next lesson, you’ll hear the sweetest words in the English language: I love you. No, just kidding. The sweetest words in the English language are, “The market was up today.” You’ll also get a quick lesson on what the heck this really means.

The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.

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About the Independent Financial Advisor

Robert Pagliarini, PhD, CFP®, EA has helped clients across the United States manage, grow, and preserve their wealth for the past 25 years. His goal is to provide comprehensive financial, investment, and tax advice in a way that was honest and ethical. In addition, he is a CFP® Board Ambassador, one of only 50 in the country, and a real fiduciary. In his spare time, he writes personal finance books, finance articles for Forbes and develops email and video financial courses to help educate others. With decades of experience as a financial advisor, the media often calls on him for his expertise. Contact Robert today to learn more about his financial planning services.

Reach us at (949) 305-0500