Among all the topics that continue to be the rage of the internet, the Stock Market is probably the most nerve-wracking one among them. For decades the Stock Market has intrigued and intimidated people with its complexities and uncertainties, but all that has changed ever since explainer videos came along. Today, a beginner can learn all there is to know about trading securities at a Stock Exchange from the comfort of their own home.
Read on to find out each aspect described by a Stock Market Explained Video for Complete Beginners.
In this article
Part 1 WHAT IS THE STOCK MARKET?
The Stock Market is often mistaken for numbers and figures that describe how the economy is functioning, but that’s not the case in reality. There is a reason why you hear words like ‘Buy’ and ‘Sell’ or ‘Up’ and ‘Down’ in relation to a Stock Exchange. What they are referring to is buying, owning or selling “stock”.
Stock is a piece of a company’s ownership that is offered to the public in the form of shares. The founders of these companies require funds for expansion and growth, so they enlist a portion of ownership of their company as an Initial Public Offering or IPO.
The value of a share can be defined as a portion of a pizza. “The bigger the overall size of the pizza, the bigger every piece is” which means as more money is raised selling shares of a company, the value of each share increases.
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On the other hand, the fluctuation of share value is dependent on various market factors like demand and supply, public confidence, government regulations and such, therefore its value increases or decreases over time.
The value of shares can also fluctuate irrespective of the true value of the company. A simple rumor or bad reputation can plummet the shares of a perfectly stable company. In contrast, younger companies can raise funds if they can establish good faith with the public.
The question is how to figure out which stock would rise and which would fall. The answer? There is no sure way of knowing that. However, there are potential market indicators like the DOW or S&P 500 that may give us some idea of how the entire market might be performing as a whole. Share prices can go up and down within seconds, which is exactly where the pressure of grabbing the right opportunity comes into play.
Part 2 How the Stock Market Works... EXPLAINED!
Young investors often misconceive the stock market as a money devouring machine that only pays off those who understand it. In reality, it is all about investing money in the value of a company.
As you already know, a' stock' is a token that signifies ownership of a company’s assets and earnings. For example, if a company like Tesla has issued 1000 shares and you purchase one of these shares, you are now an owner of 1/1000th of Tesla.
What are Common and Preferred Shares?
A company can have millions of shares divided into two types; common and preferred, based on voting rights. Common shares give you the right to vote on matters of the company, such as mergers or expansions, whereas preferred shareholders receive special preference when Dividends are announced.
What is an IPO?
Companies require resources to sustain themselves or expand their business operation, so they sell shares of the company to raise funds. Even virgin companies who are completely new can raise finance selling stocks if investors see potential in their endeavors.
They require a venue or mediator to do so to sell shares, hence entering the Stock Market. This is where companies enlist their claims as an Initial Public Offering or IPO. In doing so, the company changes its status from ‘Private’ to ‘Public’.
Once the company's shares are disclosed through their IPO, they are open to public trading.
Why does the share price fluctuate?
Imagine that you have announced a product and immediately receive several responses from buyers. As the number of buyers increases, so does the price of your product. Now, let’s say you had received no responses therefore you keep lowering your price until someone buys.
This is modestly the same with trading shares. It is dependent on the bid-ask spread which is essentially the difference value between how much someone is willing to pay for a share and how much a seller is willing to accept for that share.
How are shares split into two or more shares?
Once a company lifts off in the public’s eye and begins to receive more investment its value grows, which means that the value of each individual share also grows. This can lead to the value of each share becoming too unaffordable for new investors. This is exactly when a ‘stock split’ occurs.
For instance, your company had started out with 100 shares from which you offer 50 shares for purchase at $100 each, as your IPO. Now that your company has grown, each share is valued at $500 each, making it less affordable for potential investors. After splitting, your 100 shares will become 200 shares, and a single $500 share will become two shares worth $200 each.
What is a Stock Market bubble?
We are familiar with how a bad reputation can affect the financial health of a company, but it is also possible for the opposite to occur. If investors saw potential in a company’s performance, that could lead to the company raising funds even before they became profitable.
Then again, speculation can lead to instances where the shares of a company can be valued at much more than the company's actual value. This financial bubble poses the risk of investors losing their money.
Back in 2001, several internet companies were on the rise enticing investors to pour their money into buying shares with the expectation of turning a profit. Most of these companies failed to sell out of shares at a massive scale, resulting in the 2001 economic recession.
Stock Market only benefits those who own Stock
There are several myths that people may have regarding the stock market. To clarify one - the stock market is separate from the economy. Which is to say that the Share Prices may continue to rise even if the economy is not doing so well. Also, if you hear that the stocks of a company is rising that doesn’t mean that the employees of that company is benefiting from it. If the value of shares increases, only the owner of those shares will reap the rewards as it is up to the company's CEO to increase revenue while keeping costs down to a minimum.
How to Invest in Stocks?
Not too long ago, stocks were traded physically on the trading floor, but technology has advanced much further. Today you can open a brokerage account with any app or online site from the comfort of your home. You then transfer money from your bank to your brokerage account, which as simple as any transaction. You can then use this money in your brokerage account to purchase stocks of any public company.
Once you buy a share of a company, you are an owner of that company, and once the company earns money, they will send you your earnings directly to your brokerage account every three months.
Part 3 Stock Market Explainer Videos for Beginners
Here are some of the simplest and most creative explainer videos that perfectly deconstruct the functioning of the Stock Market;
Proactive Thinker
The Proactive Thinker uploads dozens of animated explainer videos related to financial management every week. His tutorial titled “Investing in Stocks for Beginners” has the ideal friendly and empathetic tone that would get you interested in trading right away.
Investing 101
This latest explainer video uses movie references and stock footage melded with a unique style of storytelling to help you gain a comprehensive understanding of investing in stocks. The duration of the video is 20 minutes but the entire presentation is far from boring.
Investing Basics
Going back to basics is always quite refreshing and this explainer video does just that. With the help of your good old 2D motion graphics animation this video does a great job in explaining investing to complete beginners.
Oliver Elfenbaum
This video is from the TED-Ed channel and is narrated by Oliver Elfenbaum. It starts off with a brief history lesson of how the concept of stock market came into being before moving on to explaining all the basics with a simple story structure.
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Some Final Thoughts
Stock Market trading was and still is one of the most profitable means of earning large amount of income till this day. It entails taking on a substantial amount of risk but only equivalent to the amount you are investing. Trading stock still can seem quite intimidating but with the help of simple explainer videos you can clarify myths and feel more at ease when beginning to understand the Share Market.