How things work
Shares and stock exchange
The stock market appears in
the news every day. You hear about it all the time in statements like ‘shares
in this company rose’ or shares in this group fell by 2 %. But what is a stock
market? And what are people buying and selling?
If I own business, then I
will need money, especially if I want it to grow. I might have enough money
myself but it is more likely that I will need to get some from other people.
This kind of money is called capital or financial capital.
If someone thinks that my
business will grow and make money, then they may be willing to invest, that is,
give me some money in return for a share in the profits that the business will
make. For example, if I won a restaurant which is think is worth $1000000, I
might divide it into ten and sell each piece for $100000. Then each person who
has bought a piece receives a tenth of the profits at the end of the year.
Anyone who buys a piece of my restaurant has bought shares in it and is known
as a shareholder. The restaurant will share out the profits among the
shareholders at least once a year. This payment is called a dividend.
It really is that simple.
The world stock is used to talk about a certain quantity of shares. When a
company is large enough, it usually wants to sell stocks and shares to the
public. This can be done through a stock exchange, which is like a big
supermarket for stocks. But unlike the supermarket, you can’t just walk into
stock exchange and buy shares.
You have to do it through a broker who will buy
and sell them for you and charge commission ( a percentage of the price). There
are famous stock exchanges in New York, London and Tokyo. Nowadays you can also
buy and sell shares online by registering with a special website.
