Chapter 1: Markets


A market is a place of exchange that allows buyers and sellers of a specific good or service to interact in order to facilitate an exchange. The price that individuals pay during the transaction may be determined by a number of factors that we will discuss later. Although there are many types of markets in the world, the one we are going to learn about is the stock market.

The stock market is a place in which shares of publicly held companies are issued and traded through either exchanges or over the counter markets. Also known as the equity market, the stock market is one of the most vital components of a free-market economy, as it provides companies with access to capital in exchange for giving investors a slice of ownership in the company. Although it may not seem like it, if you buy one share of the company Apple, you are indeed a part owner of the whole company!

This part ownership is not all that it seems though, as you will not have any decision making power within the company like the CEO or CFO. But what you will have is the right to take part in any profit that the companies stock accumulates while you are an owner. If you buy one share of Apple at $100 and the stock climbs to $150, you would receive $50 in profit. That’s not to say that you couldn’t lose money also as the companies that you invest in merely use your money as capital to invest in their own projects. The idea of investing in companies is pretty cool because it lets investors participate in the financial achievements of the companies whose shares they hold.

There are many different companies that make up the stock market, over 9,000 of them! The stock market can be split into two main sections: the primary market and the secondary market. The primary market is where new issues are first sold through initial public offerings. Institutional investors typically purchase most of these shares from investment banks. All other trading goes on in the secondary market (the market that YOU will trade in) where participants include both institutional and individual investors. The stock market makes it possible to grow small initial sums of money into large ones, and the beauty of growing your money is that there isn’t one exact way to do it! However in this course, we will give you the best way to do it yourself without anyone’s help.

Pop Quiz!

Go on-line and do a little reading about The Tulip and Bulb Craze and the Housing and Credit Crisis of 2007-2009.  Answer the following questions.

[mlw_quizmaster quiz=21]