Trading 101: How Does the Stock Market Work?



I've done a video about what the stock market is but now I want to talk about how the stock market actually works now I'm pretty excited about this video just because it was totally not my idea it was inspired by a comment that I got on the previous video that I've already referenced what is the stock market and I'll fully admit I assumed sorry about that and I just figured that everybody would understand what this person is asking but now if I you know pull myself out of my shoes and put myself in it you know a brand new trader shoes then oh yeah that that makes perfect sense so like I said sorry for the assuming but now we're going to go through this comment bit by bit and that's going to you know prompt pretty much all the talking points in this video i should note if you did not watch what is the stock market video and you have no idea what the stock market even is go back and watch that video first because were going to kind of piggyback off of that for those of you that have watched that video now we're going to be talking more about pizza so that should still make sense to you so let's get to this comment and then we'll jump right into the different questions and topics so this person says who are you trading your stocks with and why are you trading them what's the purpose are you trading with other shareholders and why like why would you sell your stock and if you sell what you get in return another stock I wish one video would explain this I am super I am a super beginner and everyone skips this part anyone mind explaining this please I would really appreciate it so let's go back to this first part and that'll provide us with our initial talking point who are you trading your stocks with and why are you trading them what's the purpose so who are you trading stocks with well the stock market a market is just made up of a bunch of people so that's who you're trading stocks with now sure you can have different entities you know hedge funds you know algorithms all sorts of different stuff like that but don't confuse yourself with that just understand you're trading with at the end of the day other people that make up the market so in this example let's just say we have Billy Bob right here so we'll just call him bebe Billy Bob and he owns a stock he owns a share of something our case going back to the previous video you know this is a piece of pizza he owns some pepperoni pizza or a slice of it so that's just what a share is he owns a slice of pepperoni pizza and he bought that for five dollars so Billy Bob is a participant in the market he is somebody that is making up the market itself so what is the purpose of all this at the end of the day the purpose is Billy Bob wants to make money whether it's money in the very short term like a trader would want to do whether it's money later on in life for retirement the whole point is you want to grow money in the market so at its core make money that's the whole purpose of trading that's the whole purpose of the stock market any way you slice it pun intended so but Billy's just one person right what then goes on is if Billy wants to sell so this is kind of like a little buffer zone here that is within the market and this is what we would call a broker and in this day and age you know you can still put you know get the phone and talk to your broker but online is where the vast majority of this broker stuff is happening so the broker is what's connecting Billy Bob to other people in the market so this next part are you trading with other shareholders and why like why would you sell your stock and if you sell it what do you get in return another stock so are you trading with other shareholders maybe maybe not some people could also already own pepperoni pizza maybe they want some more slices of it some more shares of it maybe somebody does not own any pepperoni pizza at all so in that case they're not a shareholder but they want to become a shareholder so are you only trading with other shareholders absolutely not take you for example maybe you've never traded the stock ever but you could enter into the market and you would then be able to buy and participate so know you're not always trading with other shareholders sometimes it might just be somebody brand new but again why would you want to I do you want all this to make money that's really the end that's it to make money that's the whole purpose of all of this now what do you get in return well let's go through that so and this is really going to summarize what's going on within the market so Billy Bob you know he bought that piece of pizza pepperoni for five dollars some good things go on you know pepperoni super good for your health new you know research comes out so that all of a sudden causes his five dollar piece of pepperoni pizza to now be worth eight dollars and fifty cents so that that's good because he bought it for five now all of a sudden it's worth eight dollars and fifty cents and why would he sell so I don't know there's so many reasons maybe he's got a bill that he needs to pay maybe he just thinks that 850 it's kind of overvalued that's crazy I can't believe somebody's willing to pay that much I don't think it's going to go up any higher price so he just wants to get out maybe um you know like I said he's in retirement and he needs that money to you know there's just so many reasons why do people sell again at the end of the day people sell because I want to put the money in their pocket as long as he owns pepperoni pizza a share of it it's just a piece of pepperoni pizza it doesn't have any value until you sell so in order to what's called realized the gain you need to actually sell so that is why at its core because he wants money he wants to put money in his pocket because before you sell yes something might be worth 850 but it's only worth you lock in the worth when you sell so how is he going to do this does he you know go to his neighbor and knock on the door and say hey I got a share a pepperoni pizza do you want to buy this from me for $8.50 good news is no that's not how the market works at all the way everything does work though is we have other people in the market so over here give her some here we have Sally sue and Sally sue is just brand-new she's you know hey I'm getting to the market and I you know I read all these studies on pepperoni pizza it's supposed to be really good I think I think pepperoni pizzas only going to get more valuable so I would like to buy some pepperoni pizza well what does she need to do in order to buy well she needs to find some she needs to find his seller so what she's gonna do is she's gonna go to her broker what Billy Bob's doing because remember he wants to sell so what does he need to do in order in order to sell well you need he needs a buyer right if you try to sell your car yeah you can sell it but until a buyer comes along it's just going to be sitting out in your front yard so he is also going to go to his buyer or excuse me go to his broker looking for a buyer so he is looking for a buyer she is looking for a seller and the broker right here online is where this is all taking place and this is all taking place in fractions of a second if you go to your online broker and you're clicking buy sell all that sort of stuff I mean this stuff is happening like this this is a very just simplistic way but that's how its operating your broker is is computer programs and it's matching up people that want to buy with people that want to sell it's helping Billy Bob find a buyer it's helping Sally sue find a seller it's bringing them together and then it's going to allow the exchange to happen so Sally sue thinks that their broker all this stuff is happening online she gets the shares and she pays $8.50 so we'll go through some quick math real quick he bought Billy Bob for $5.00 and he sold for $8.50 so what is the difference between these numbers some quick math the difference is three dollars and fifty cents so to answer the final question what is but Billy Bob get for selling does he get more shares no he is getting cash he's getting money into his count which equates to three dollars and fifty cents on the game because he originally had to spend five dollars all of a sudden he now has $8.50 in his account so when you do the math well he's got three dollar fifty cents more than where he started therefore this is his actual gain but to answer the heart of the question when you sell your broker is putting money into the pocket so Sally sue does not have to you know jump over all this you know walk over to Billy Bob's house and you know hey you know grab her purse and hand him $8.50 the seller is giving the money to the broker and then the broker is giving the money to Billy Bob and this again is all happening in you know seconds it's it's very quick and it happens just like that so by no means is this some you know if you're trying to sell a house obviously that's a big long process you have to put in an offer and go through paperwork and then wait for things and then transaction you know just oh just if you've ever bought a house you know exactly what I'm talking about not so here this is everything happens due to the broker and you know the way everything is set up so you know kind of answer those final questions why are people selling why do people trade to make money why would they because they need money they want to convert their shares into money that's how you convert a share of stock you know a piece of pizza into actual cash and then what are you getting in return are you getting more shares are you getting you know what are you get you're just getting cash it's like your checking account all of a sudden money shows up into your checking account and the ideal idea is you want more money than what you started with now if something bad happened and Billy Bob could only sell to Sally Stu for $3 well he spent $5.00 but now this broker is only putting $3 back into his account which means he lost $2 so it's not oh you're not always going to make money but that's the goal you want your broker to be putting more money into your account than what you started with but this is how the stock market works your broker is matching up buyers and sellers some people want to sell some people want to buy why what are their motivations I mean it truly is endless on why somebody would want to sell or why somebody would want to buy obviously people are buying because they think the value is going to go higher people are selling because a they need some cash right then and there or B they think yeah I don't think the value is going to go any higher I want to get out right now but you know all little details of that I mean that is truly a case-by-case basis so hopefully this helps you out fantastic questions and you know if you or anybody have any other questions please leave those in the comments below like I said I would never plan on doing a video like because in my mind this is just common central yeah that's how the market works but I'm not brand new anymore so maybe there's some other things I'm overlooking so I do appreciate suggestions and comments you know in this comment section below if you enjoyed the video if you find it helpful click that like button check out other videos on the channel I offer a lot more than just you know kind of these basic introductory topics so definitely search around and hopefully you decide to subscribe but thank you as always for watching and I'll see you back for the next video

29 thoughts on “Trading 101: How Does the Stock Market Work?

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  2. what if you decide to keep your stock will you be still getting money? and what if you want money for retirement and make money in the very short term like you mentioned? i’m a teenager trying to learn your videos helped a lot thanks

  3. Does BB get the $8.50 in his account meaning he gets his main investment back plus his profit? or does he get just the profit of $3.50 in his account? And If he just gets the profit, where does his $5.00 (main investment ) stays?

    And when it comes to loosing money. How do you loose money? Lets say you bought the stock $5.00 but its value went down to $2.00. Do you loose without selling it? Or do you have to sell it in order to be confirmed as a lost? Or can you just leave it there and see if it goes back up? Or because of a decrease in value now you owe something to lets say the broker? I mean how do you loose without selling?
    What is the risk of trading that everyone talks about? My opinion is you haven’t lost anything unless you sell after the value has decreased. If you don’t sell you haven’t lost anything? You don’t want to loose, then don’t sell it. The only risk is that it would never ever come back up. And what happens when the market crashes? Does everything just disappears? Or the money ends up in someones hands?

  4. I know I’m 3 years late and I hope you see this. Please help explain more I know about the trading aspect the while buying and selling and the broker. It I always thought that we get like a monthly or annual payment from the company we buy the stocks from. If not why then do we buy

  5. I love how I'm only 11and I already know how the stock market works because my dad taught me how it works when I was 8.

  6. I'm thinking of buying a share but I've never invested in the stock market but I have 1 question. Where does your money go when you sell the share? Is it linked to some sort of banking account?

  7. Hi Clay, i dunno if you're still active in answering question BUT then again, I'm new to stock trading. I already have a cash account but I dont have my "own" online trader. Is that a person I pay commision to …to trade for me? Can i not trade by my self? or are they the "behind the scene guys" that facilitate all this tradings? Am i making any sense?

  8. Thank you so much, your videos are really helpful, I was wondering if there is a way to make money via being the broker, like similar to bitcoin ? Or does that not work with the stock market?

  9. Is there like a maximum amount of stocks a plc will sell until you just have to buy between traders and sellers? Also, let's say everyone went to sell their stocks, so there were no buyers: would you just have to keep the stock, or is there any way to get rid of it without selling?

  10. What happens if there is no buyer? Are all shares (or slices) of one company (pizza) identical? Is there a limit to the amount of shares a company can be divided into? Danke im voraus.

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