We’ve all heard of the and probably have a general idea of what it is and how it works either from high school economics classes, television financial reports, and the countless film depictions of what happens on the floor of the New York Stock Exchange. But how does it really work and what is meant by “playing the stock market?”

The in a Nutshell

Companies sell shares of stock as a means of raising capital. For example, let’s say that the XYZ corporation, makers of the finest whatsidoos and thingamabobs in the country, wants to open a new factory. Doing so will require a hundred million dollars. The company can get a loan from a bank, but it would wind up in debt. So, instead of borrowing, it decides to offer additional shares of stock. As investors purchase the stock they are giving the company the capital it needs to do business. In return the stockholders actually own a part of the company and have some say in its activities. If XYZ does well in the thingamabob market, its stock will raise in value as more people will want to have a piece of XYZ for themselves. If it doesn’t do so well (maybe it gets undersold by the Ichi Nee company, a Japanese conglomerate that has found a way to make smaller, cheaper thingamabobs), less investors will buy the stock, current stockholders may try to sell, and the value of the stock drops. The

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