How does the stock market work?

We have all heard the amazing stories about people making it big on the stock market. The tales are almost like the adult version of fairy tales; someone taking a small amount of money and making something truly amazing so that they never need to worry about money again.
We see example of the stock market heroes; people like Warren Buffet who know how to work the stock market in their favor. These kind of people always inspire me in a way. They fill me with some sort of desire to try my hand in the stock market and see if I can make some quick cash.

Before you start investing in the stock market it is a good idea to ask yourself, “How does the stock market work?” The answer to this question is simple. Companies go public by offering a specific number of shares in their company to the public through the stock exchange. Investors then can use the stock exchange to buy and sell stocks of companies that they are interested in. While this basic description of how the stock market works is adequate enough to understand what the stock market is, to get a better understanding of how it actually works it will be important to learn about some of the terms that are commonly used when discussing the stock exchange including stock prices and market capitalization.

The first term that you may hear when you start learning about how the stock market works is stock prices. Stock prices are the price that a specific stock sells for. This price is set by several market factors including the health of the economy, trading trends, spending trends, and financial or technical reports put out by a company or an independent third party. The next term that you may hear about is market capitalization. Market capitalization is the value of the company or the stock that is being offered. To calculate the market capitalization of a company, or stock, simply use this formula: The number of outstanding shares X the price of the stock = market capitalization of the company.

After you learn about the basics features of the stock exchange you will next need to learn how to buy and sell shares. To buy a stock you will need to establish some kind of investment account. In most cases you will open an investment account with a stock broker that works at a local firm. However, today you can also open an online investment account and make trades without the help of a stock broker. After you have set up your account you will need to fund it before you can make a purchase. Once your account is funded you will be able to enter your order for a stock purchase. When you are ready to sell your shares you will either tell your stock broker that you want to sell X number of shares of Company A, or you will need to enter a sell order via your online investment account.