Skip to main content
5 answers
5
Asked 5282 views

How does investing in the stock market work? When I buy a share in a company, how do I sell it? How do people lose money in the market? Any other information?

stock market
college student
#stocks-investing #stock-market #stock-trading

+25 Karma if successful
From: You
To: Friend
Subject: Career question for you

5

5 answers


2
Updated
Share a link to this answer
Share a link to this answer

Jared’s Answer, CareerVillage.org Team

The process would be different if you're trading individually vs. if you were trading on behalf of a company or for your employer. Assuming you're asking about the process if you are an individual, you'd most likely buy and sell stocks using an account you have with a brokerage company like Charles Schwab, E*Trade, or any of a large number of others. You'd log into your account, where you'd see your account balance and a link to trade stocks. When you buy a share in a company, you'll usually be buying at a price determined by "the market" which is the price you'd see on a finance website like finance.yahoo.com (I'm oversimplifying here quite a lot, to keep things simple, and I'm sort of sidestepping defining what the market is, but be forewarned that there's a lot of details and little changes you can make to how you do this). When you sell a share, you'll be selling at the price the market offers again. If the price you sell at is below the price you bought at, you'd have lost money on that trade.

Example:
January 1st, 2020: You bought a share in a company. The price was $10 per share. It costs you $10.
June 1st, 2020: You sold the share. The price went down to $8 per share. You got $8 back into your account.
The result would be that you used to have $10 in cash, but now you have only $8 in cash. You lost money on that trade. Oh and also, the brokerage company you used charged you $1 every time you traded as a fee, so actually you lost another $2 to fees, so you actually only have $6 in your account. Obviously, all of this math would be reversed if you were selling at a price higher than the price you bought at (making money on your trades). And in case you're making money, you also need to learn about taxes and inflation and other stuff.

Also: just in case it's a little confusing who you're buying from and selling to (it was confusing for me when I first was learning about this)... you are always buying from *someone* and selling to *someone*, even though it's almost never transparent to you who you're buying from or selling to. Typically a company's shares are being bought and sold virtually constantly in transactions both large (many shares) and small (few shares). Your broker will be keeping an eye on the offers to buy or sell out there and combining your offer in with the others to "clear" the market. This used to be done by hand (with real human beings handling all of the "clearing") but now it's happening with computers doing almost all the work and doing it much faster than ever before. So your brokerage company will just say "trade done!" and you'll know that you bought or sold, but probably not know who to or from.

Everything I'm sharing above is a pretty big simplification of it all. I'm just sharing how one individual might experience the buying and selling process. But there are many other ways to invest, including investing in different types of "assets" (stocks are often called "equity", but you can also buy and sell other types of things such as exchange traded funds or debt or real estate or others), and you can invest with different terms (for example using options), and you can also invest using brokers you call on the phone (instead of using an app) or use a "robo-advisor". There are a lot of different options out there!

It sounds like you're interested in learning more about investing, which is something I really was curious about as well when I was younger (especially in High School). You might want to checkout occupations in the Financial Services industry -- there are a huge number of jobs in and around the financial markets, including things that get you right up close to the markets (commodities trading for example) and others that interact with the financial markets from a further distance (maybe working in the finance department of a large company, for example, which might lead to changes in your company's financing strategy based on changes in the financial markets). If you decide to go to college and your college has a business program you can also look into whether you can major in or study finance. I majored in finance in college (after switching from other majors) and found it to be really intellectually fascinating (a lot more theory involved than I expected!).

Source: I've bought and sold shares in companies as an individual. I got my undergraduate degree in finance. However, I've never been a broker or dealer.

Jared, CareerVillage.org Team recommends the following next steps:

Watch this great Kurzgesagt video: How The Stock Exchange Works https://www.youtube.com/watch?v=F3QpgXBtDeo
Make a list of 10 occupations that have to do with the financial markets
2
1
Updated
Share a link to this answer
Share a link to this answer

Gabriel’s Answer

In addition to the procedure on investing in the stock market mentioned by @Jared above, I would also like to point out the risks that you may also like to know:

Choosing a Broker
You need to first open a trading account with a broker. Brokers typically charge you a transaction fee based on the amount you trade. The transaction fees can be quite different across brokers. Like a bank, a broker will hold your money and stock on your behalf, so its credibility important as well.

Trade on Margin
Broker usually offers credit line for you to trade more than the cash you put in the account. E.g. you put $100 with the broker, but you can possibly buy $200 worth of stocks. Broker will charge you interest on the money. Moreover, you are leveraging your investment, so both your upside and downside can be amplified. If you want to trade on margin, please make sure you understand your potential risk exposure.

Other Securities
In addition to stocks, you can also trade other stock-like products, such as ETF and REITS. The transaction steps are similar, but the underlying assets would be different. This means buying those securities may expose you to risks more than just one company.
1
0
Updated
Share a link to this answer
Share a link to this answer

Steven’s Answer

How does investing in the stock market work? When I buy a share in a company, how do I sell it? How do people lose money in the market? Any other information?


First you have to go to a broker. Then you can buy and sell when you want. Depending on type of brokerage account in may be a taxable event. Most people lose by getting in stocks at bad prices and being impatient. Most people lose from panic selling (selling too early) and risking more than they can afford. Research Warren Buffet and Ray Diallo
0
0
Updated
Share a link to this answer
Share a link to this answer

lewei’s Answer

My experience is find good company of cause it must be a public market trading object in NASDAQ or NYE, don't touch pink stocks, 99% of them are fraud and liars, it is hard to find gold in sands, so don't it, in the public market it would be easier.
If you don't want to do trading for life just to look for a good investment, do the long side, never short, good company from a long period of time it offers good return if you want to stay with it.
there is saying 'I gain you lost' game in the market, that's for people in the WALL Streets trading for life game, don't try to jump into that if you don't understand the rule and principle yet.
good company would eventually honor your investment just no that rush, investment and stay with good company is like be with a pregnant woman, it takes longer to see the progress, but you will get your return.
0
0
Updated
Share a link to this answer
Share a link to this answer

Manjunath’s Answer

Yes, you have heard it right. Here are my insights:
1. Trading is different from investment. While investment can either be long-term (infinite years including transfer of your shares to your children/grandchildren) or short-term (anywhere between 1 to 6 months), trading is broadly considered as intra-day (buy and sell the same day) or positional (at the maximum, the holding period will be for 1 month).
2. Trading involves in-depth market analysis - the first one is fundamental analysis and the second one is technical analysis.
a. In fundamental analysis an analyst needs to look at the financial statements of a company, its business model, overall macroeconomic scenarios, management capabilities and many more things for coming to a specific fair value of a company.
b. On the contrary, the discipline of technical analysis is not at all concerned with this detailed study of fundamental factors. A technical analyst only looks at price of a stock derived as a result of supply-demand interaction. For a technical analyst, price is supreme and he or she sees price as manifestation of every fundamental reality. Hence, they look only at two main aspects in the market. Price -over -time and volume. Technical analysis is a very interesting subject. This is not a definitive science, rather a probabilistic discipline. In simple terms, it is more of an art than science. There are well known chart patterns or indicators in the market. With experience, a Technical Analyst is able to form an opinion of his or her own so that he has some extra edge on the market assessment than someone having just bookish knowledge of technical analysis.
3. When it comes to day-trading as a discipline, it broadly involves the following:
a. Trading in Equity Markets – Buying or Selling of Shares of listed companies (for example, buying or selling to Tata Motors’ shares).
b. Trading in Derivative Markets - Buying or Selling of Futures or forwards (for example, buying or selling of Titan Company Futures).
c. Trading in Derivative Markets – Buying or Selling of Index Options or Stock Options that are listed as part of Futures and Options market (for example, buying or selling of Titan Company options).
4. In order to become a successful trader:
a. Identify a trainer/mentor who can provide you some basics about trading and will support you as initial handholding.
b. Every trader has to pay the tuition fees to the market (initial losses will always be there).
c. Most of the traders go through this journey – Initial Losses > Small Profits & Big Losses > Small Profits & Small Losses > Big Profits & Small Losses > Big Profits & Rare Losses.
d. Read a couple great books on Trading.
e. Familiarize with a couple of leading indicators (RSI, ADX, Supertrend, etc).
f. Familiarize with the concepts of Bullishness and Bearishness of the markets.
g. Familiarize with sectoral rotation of the markets (for example, during India’s summer, companies that are into refrigerators, air conditioners, air coolers, make great money; invest in those companies.
h. Familiarize with the concepts of Price Action (how to read the charts and the associated price action).
5. On closing notes, discipline is everything in day trading.
6. Always consider that markets are supreme, market knows everything, market discounts everything; never assume that you know something before the market does.
7. Build a robust system and have faith in your system.
Good Luck and Happy Trading.
0