Hey Anontalk.

i've been confused about the Stock markets for a while. I want to know what they are! I've tried reading the wikipedia article, but i cant make sense of it? I wonder if any anon could give me a brief generlisation of what they are and how they work?

Thanks AT!

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Without any idea of what you already know about economics, it would be impossible to do this, and I doubt that anyone is going to try. However, this stuff is very important to understand, and if you want to be a reasonably educated person who can think intelligently about the world, then you must learn to understand it.

My recommendation is that you get a copy of Adam Smith's The Wealth of Nations and read the whole thing. You can download it for free online, but I recommend that you buy a print copy so that you can carry it around and read it while you're waiting in line, or eating lunch, or whatever. It's an excellent book that assumes that you have practically no knowledge of economics. At the end of reading it, you will have a good understanding of market economics and finance.

Some economists will argue that parts of The Wealth of Nations are incorrect, but you should still do yourself the favor of knowing what Adam Smith said and thinking about it for yourself. Even if you never study economics ever again, as an individual of reasonable intelligence, you owe it to yourself to understand economic theory at least to the level of The Wealth of Nations.

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@68,397

I see, thank you for your input.

I wonder if you could tell me if my view on the stock markets is any closer to what they really are? my common sense guess would be that Stock markets are another way for companies to make capital by selling shares?

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@68,399

Yep.

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@68,401

Okay Thanks.

But one last question. I think i understand the need for extra markets such as the DOW and the XETRA (as there different counteries right?) but whats the deal with the FTSE and then a FTSE 250, FTSE 360 etc. Why not have ONE FTSE market?

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@68,403

I'm not an economist, so if someone claims a different answer here, you ought to consider it.

First of all, your question is somewhat flawed, because the FTSE is just a list — not a market. The market is the London Stock Exchange. However, that's not really answering your question, which is really (I think), "Why should the individual exchanges limit who is publicly traded to a certain list of companies?"

To answer, well, there isn't really any inherent reason. Historically, it was difficult to keep track of a lot of different companies (think back before there were computerized databases, and then think back before there was even grid paper and people were writing shit with quills dipped in ink) and so, in order to simplify trading, compromises had to be made. If you wanted to get in on a big exchange, you had to have enough stock trading around to make it worthwhile to bother. Today, I can't think of any particular reason. It's mainly just a prestige thing.

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I'll give the explanation my dad gave me as a kid.

A stock is basically a deed that promises you "X" percent of a company's earnings. When a company makes more money, that stock increases in value, because that percentage goes up, and more people try to buy it, so the stockholders can charge more for it if they wish to sell. If Apple releases a new iPod, the value of the stock will go up, since new iPod=revenue for company=increased value of stock. But if, say, one of Apple's iPod's is said to have a bug which causes the product to explode, bad reputation=decreased iPod sales=less revenue for company=less stock value.

Companies sell stocks as a short term investment. If a company sells 500 million stocks of itself for $2 a piece, it makes a billion dollars, which it can then use for whatever it wants. Companies usually gain a reputation for being popular or reliable before selling stock, so that they are assured buyers.

Once a stock is released to the public, it is traded on a market. There are several different exchanges throughout the world, some in London, New York, Zurich, etc. This is where a normal person can make money.

Lets say you buy 200 shares of Google at $50 a share (in reality Google's stocks are worth much more, but w/e). This means you spend a total of $10,000. Google then releases a new feature which everybody loves. The stock value goes up, since the company is now worth more. For the sake of easy math, lets say the value goes up 5 dollars. If you then sell these shares, you will have made $1000 in profit. (55 times 200 equals 11000, subtract the money you spent buying the shares, makes 1000).

But if that feature had flopped, and the value had decreased by 5 dollars, the total value of your stocks would now only be $9000. So you would have lost $1000.

The stock could go back up for some reason, and you could make up what you had lost, but it could keep going down, and you could lose more.

That's just about all you need to know. Sure, there's other stuff, like short sells (where you make money off a company's loss) and a bunch of technical crap, but that's about it.

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@68,458

This, was a perfect explanation, Thanks alot.

and Short sells, werent they banned until next year?!

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