For Kid

The Stock Market

Stock in General.

The stock market has been in the news a lot lately. Your older family members are probably talking about it more than usual, or you might know someone who talks about it. But what is this mysterious "stock market"? Is it a place that sells stock? Well, sort of.
First of all, let's look at what stock is. Stock is an investment that people pay to a company because they believe that that company will make money. It's kind of like a loan, except that payback isn't guaranteed. A bunch of people give a company money, and in return those people (called investors) get a certain amount of shares of stock. The company sells these shares of stock at a certain price; and the more money you pay, the more shares you can buy.
For example, if the price of Disney stock is $10, then you can get 3 shares for $30. When you write Disney a check for $30, they give you 3 shares of stock.
What can you do with it? Most people who buy shares of stock want to sell them for more than they bought them for, so they hold onto them. If the share price goes up to $15, then you can sell your 3 shares of stock and make $15, since you spent $30 originally and you got $45 back.
You might think, however, that Disney is a good company that makes good products and that they might make even more money later on. You could hold onto your stock and hope that the share price goes even higher. Usually, the more money a company makes, the higher its stock price goes. You might decide that you're going to sell only if the share price reaches $30. In that case, you watch the share price until it reaches the $30 level, then sell. What do you make? Well, you get $90, so you make a profit of $60 (since you spent $30 to buy the stock in the first place).


Stock prices don't always go up, though. They can go down just as quickly as they can go up. If you decide to hold onto your stock and the prices goes down below $10, then you would get less money than you originally spent. For example, if the price went down to $5 and you sold your shares, then you would get back $15, meaning that you lost $15 in the deal. This is the danger in buying stocks: Their share prices can also go down.
But they can also go way, way up, which is what has happened in the computer stocks market for the last 15 years or so. (Actually, the last few years have seen computer stock prices drop very rapidly, but the period of fast, continued growth was incredibly long.)
Many companies sell shares of stock, and they depend on the money they get for these shares of stock to pay their bills. The higher the stock share price goes, the more shares the company will usually sell, meaning that more money will be available. The reverse is usually true as well: The lower the stock share price goes, the less shares the company will usually sell and the the less will be coming in. In fact, when the price goes down, more people sell than buy.
The stock market, then, is a collection of the stock trading done by companies all over the country. All of these companies are buying and selling share of stock all the time. Together, they are called the stock market.
What does all this mean to you? Well, you probably don't have a lot of money to go spending on expensive stocks. You might very well have hanging on your bedroom wall a certificate showing that you own one share of Disney stock (or some other kid-friendly company). Your older family members are more likely to own stocks. But it always help to know what they're talking about. You'll have an opportunity to buy and sell stocks someday. You might even do it for a living.