Stocks 101 Part Four

By Mallory Megan

In parts one through three of my beginner´s course on stocks, I wrote that the stock of the company was the original amount of capital that went into founding it. I said that businesses divide stocks into shares, which can be bought or sold to shareholders, who are people who own one or more shares of stock and therefore 'share ownership' of the company. I wrote about stock brokers who are people that will charge you to arrange the purchasing or selling of stock. Now a bit buying and selling stock.

As far as financing a purchase of stock, there are two ways to do it: purchase stock with money that is currently in the buyer´s ownership, or by buying stock on margin. When you purchase stock on margin you are buying stock with money that is borrowed against the stocks in the same account. In other words, you use the stock you already own as collateral to guarantee that you can repay your loan. Otherwise, the stockbroker can sell the collateral to repay the money.

Selling stock works pretty much the same way as buying stock. Usually, the investor is going to want to buy low and sell high. After a broker takes out his fee for arranging the transfer of stock from a seller to a buyer, the seller is entitled to all of the money.

The price of a stock will fluctuate with the theory of supply and demand, supply being the number of shares that are offered for sale at any one moment, demand being the number of shares investors want to buy at that exact same time. When people who want to buy stock outnumber people who want to sell stock, the price will increase. Eventually, sellers will see how high the stock is being sold for and start to sell their stock, or buyers will leave and equilibrium will be achieved between buyers and sellers. When sellers outnumber buyers, the price falls. Eventually buyers come back in or sellers leave, and equilibrium is again achieved. Therefore, the value of a share of a business at any given moment is determined by all investors voting with their money.

Obviously, all of this doesn´t explain how people decide the maximum price at which they are willing to buy or the minimum price at which they are willing to sell, people´s selling and buying habits, or which stock will be more valuable when. People spend lifetimes trying to figure this information out, it´s still up for debate, and if I knew, I wouldn´t be here typing about stock, I´d be in my fabulous mansion! But it is my hope that my primer course on stock was at least a little enlightening.

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About The Author
Mallory Megan works for Rapid Recovery Solution and writes articles on medical collection agencies. This article, www.uberarticles.com/home.php?id=2374785 &p=47693'>Stocks 101 Part Four is available for free reprint.