How the Stock Market Works?

Posted by Grace under Investing on November 4, 2014

Know how the stock market works and how can you make money through stock market investing. Know the proper procedures of stock investing.

Want to learn how the stock market worksStock investing is very risky but profitable, but do you know how the stock market works? Maybe you just hear from somewhere else or someone else about stock investing. Today, here in InvestmentTotal, we will talk about how to make money in the stock market, the procedures on how to buy your first stocks, how to determine if you are gaining or losing money, and the benefits of stock market investing.


As I have mentioned in my previous post, investing in the stocks isn’t only for the rich people, actually, it is for those “wanna be” rich. Some people think investing in the stock market is very difficult to do, the truth is, it is so easy, however, an investor must willing to learn necessary things especially nowadays we are on information age. It means even online, you can learn how to trade stocks and make money with it. Unlike before, you need to make a phone call to your stock broker just to buy stocks. Have to time to read – How to Start Investing in Stocks for more information.

Before I proceed to answer your question on “how the stock market works?”, let me first give you some information about financial terms related to stock market investing.

Stocks means the shares of corporate capital or their certificates of ownership. If you have shares in the company or corporation, this simply means you are also a part owner of it. You can be considered as an “stockholder” of the company and you have the rights to receive dividends declared by the board of directors.

Stockholder, a person who owns shares of stock of corporate capital. If you invest even a small amount of money you may consider yourself as a stockholder. Study your obligations as an investor. You have the “investment job”, it is your job to invest your money, the stockbroker services company is only the place to invest in the stock market, unless you want someone (stock broker/agent) to do the investing for you. Example of stock is Berkshire Hathaway Class B.

As a stockholder, you have also the right to request a certificate of ownership, this certificate can be use when planning to travel abroad especially when having an interview with the consulate (example US Embassy) or as a basis to get a loan in the bank or other financial institutions.

Stock Exchange, also called as the “stock market” a place where stocks are bought and sold. Example of stock exchange are Singapore Stock Exchange, Philippine Stock Exchange, Australian Stock Exchange, NYSE, Toronto Stock Exchange, Dubai Stock Exchange, etc.

I assume you understand now the different financial terms. Going back to the topic, let us now start to answer the question “how does the stock market works?” straight to the point.

How the Stock Market Works – Who Can Invest?

Anyone can invest in the stock market even a child, as long as the parents open an account for his child. The account for minor is called “in-trust-for” account.

What are the Requirements in Opening a Stock Broker Account?

There are specific requirements or documents needed when opening a stock broker account, government valid ID’s that has clear pictures and clear signatures, investment account form (usually downloadable in the official website of your chosen stock broker), bank account, birth certificate (for minors).Email address is also required when opening a stock broker account online.

How Much Money Required to Open a Stock Broker Account?

Some stock brokerage company requires a small amount at least $100, and some other are not requiring to open an account, but, you needed to fund your investment account so that you can buy stock shares.

Is it Safe to Invest in Stocks Online?

Yes it is, however, you need to check the website if it is the official website of your chosen stock broker. Some stockbroker websites has free tutorials before you will proceed in investing. Some important tutorials such as funding your investment account, buying and selling stocks and redeeming or withdrawal of funds are the things you should learn.

Where Can I Find Recommended Stocks to Buy Today?

You can find recommendations by asking stock experts doing stocks analysis. Some experts recommends blue chips companies if you are investing long-term, let’s say 10-20 years. There are list of blue chip companies here.

How Do I Know If I am Making Money or Not?

It is easy to analyze whether you are making money in the stock market or not. Just simply look t your portfolio, red colors means loses while green colors as a gaining signs, or just look at the negative and positive symbol.

If you bought stock today with a stock price of $5.20 and tomorrow the stock price will became $5.40, that means you gain $0.20, but if tomorrow the stock price decrease to $5.10, it simply means you are losing money amounting to $0.10. (-$10)

How to Know the Price of Stock Today?

You can easily find the stock prices today via online or in your local business newspaper. If you are always online, you can go to or, type the stock symbol or ticker in these websites and you can see immediately the stock price, stock charts, historical price and even some fundamental analysis.

How to Make Money on the Stock Market?

There are two ways to make money on stocks. The first one is “capital gains” and the second is “dividends”. Let us discuss these one by one.

1. Make Money Through Capital Gains – capital gains means your total invested capital got an high total return. It is just like, buying and selling. If you buy an iPhone gadget worth $1,000 and sell it after 2 month worth $800, that means you are losing $200, but if you sell the gadget worth $1,050 after 2 months, it means you make a profit of $50. The trick is to buy stocks at a low price and sell these stocks at high price?

How do you know if the stock price will increase or decrease? Noone can predict the stock prices even the genius stock experts, because of the risk involved.

2. Make Money Through Dividends – a dividend is a distribution of profits to the company’s stock holders, types of dividends can be cash dividends or stock dividends. This dividends serves as a “bonus” to the stockholders. How do you know when to receive a dividends?

The announcement of dividend payments can be written in the official website of the company (investor relations page), in your stock broker, or in your local/country’s stock exchange – example, NYSE, London Stock Exchange, etc.

Is it Possible to Lose Investment Capital in the Stock Market?

Yes, there is a possible loss of capital investment in stock investing. To avoid losing money, a new investor must equip himself with knowledge and skills. You can learn stock investing by attending seminars, reading books and financial blogs like

How the Stock Market Works – Final Thought:

If you are new to stock market investing, make sure you have an investment goal, you have a clear purpose why you are investing. You must also know your investment horizon, how many years should your money to stay invested in the stock market?

If you are a beginner, it is better to ask stock experts to teach you what to do or what stocks to buy. I do hope, it is now clear to you, how the stock market works.

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Now you know how the stock market works, invest in it and make your money work for you! Subscribe to InvestmentTotal newsletter to receive daily updates via email. Share this topic to your friends in Facebook, Twitter, Google + LinkedIn or other social networking sites. Have a successful stock market investing.

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