What is the stock market and how does it work? – The Investment Club explains


That is a very good question, one that many people have probably asked themselves, but when they attempted to find the answer got overwhelmed by the elaborate jargon of finance. To make things simple, how about we skip the jargon and get straight to the facts? Let’s dig in. The stock market is called a market for a reason. Simply because it is a place where things can be bought and sold. Unlike a supermarket you cannot buy groceries at a stock market. However you could buy a share of a company that sells groceries. A share is a part of a company. So when someone buys a share, they own a small percentage of the company, if you buy enough shares you could become the largest shareholder and actually own the entire company, but that takes a lot of buying.

Investors buy and sell shares at stock exchanges, called exchanges due to the exchange (buying and selling) that takes place there. A stock exchange can be compared to a local branch of a supermarket whereas the stock market is all of branches but together to form a global market.

You have heard of the New York Stock Exchange or NYSE for short. It is one of the most well-known exchanges in the world. There is also an Exchange in Zurich called the Swiss Exchange (SIX) where shares of shares of many Swiss Companies can be bought or sold. You may have heard people talking about how the market is going up or going down, but if a market is the whole store how can it go up or down? Continuing the supermarket analogy, companies can be seen as different products that are sold by

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a supermarket. These different products are constantly changing prices. So when all of these prices are going down you can say that the market is going down. If this gets bad it may even called a recession. To make things clearer, a recession is when a country goes through a period of significant decline in economic activity. But what causes the prices to change? The prices of shares of companies are set by the all of the buyers and sellers who are also referred to as the market. It is a simple supply and demand relationship. The price is simply whatever people will pay for it given the amount available for purchase. If everyone wants to buy shares and there is very limited amount available for purchase, for example. Why buy a company? To make money of course. You can’t make millions the day you start investing. You can make a lot of money if you do your research, read a lot, and get a little bit lucky. This usually takes a degree to figure out, but can be done earlier. Warren Buffett started investing when he was 18. If you can with some accuracy buy low and sell high, you’ll be rich in no time. However, no one knows what the market is going to do. Even the top analysts or the guy on the news have no idea what is going to happen in the market. Is it hopeless to invest? Maybe, but if you know what you’re doing, you will get some things right for sure, and hopefully make some money. Ben Lindgren ‘16


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