How does the stock market work

How does the stock market work? This is certainly not an easy question to answer and if anyone could understand exactly how the stock market works they would become extremely rich – if they wanted to of course. This doesn’t mean that you should let a blind monkey take care of your investments; learning more about how the stock market works can increase your chances of making a nice profit and it will also make it easier for you to stay clear of common traps and pitfalls.

So, how does the stock market work? To put it simply, companies choose to go public and issue shares because they need money. One of the first types of stocks was issued by traders who wanted to finance expeditions to India and China. Such a project was naturally very risky and really expensive, but if the expedition turned out to be a success and managed to bring silk, porcelain, spices, tea and other rare and valuable commodities to Europe the traders would become immensely rich. If, on the other hand, the ship would sink, be hijacked by pirates, or something similar, all the money invested in the project would be lost. High risk and high potential rewards. In order to gain sufficient founding, a trader could allow wealthy persons to invest in the project. If the expedition turned out to be a success, the investor would receive a specified share of the profit. If the ship sunk or failed in some other fashion, the money invested would be lost. Unlike a normal loan, each investor would take the risk here and if the ship sunk, they could not force the trader to pay back any money. If you can understand this basic concept, you are actually well on your way of understanding how our modern stock market works. How does the stock market work? Like 17th century trading expeditions!

Over time, stock markets emerged in all corners of the world and the art of stock trading became more and more complex. Today, a lot of people work full time trying to answer the question “How does the stock market work?” If you want to understand the nature of the stock market, learning the special “stock market language” used by these professionals is a good start. Do you for instance know what Leprechaun Leader is? How to avoid a falling knife? How to interpret a J. Lo? If not, its time to do some reading.

(A Leprechaun Leader is a corporate manager or executive said to possess a hidden treasure.  In Irish folklore, the Leprechaun is a mischievous creature that will only reveal its hidden treasure if you manage to catch and hold him. In finance markets, the mischievous and dishonest Leprechaun Leader will only reveal his protected offshore account if you, or preferably the police, manage to catch and hold him. Examples of Lepre-'con' leaders are the Enron leaders who only revealed their hidden off-shore treasures when justice finally caught them and managed to hold on to them.)

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