Basic Introduction to the Stock Market for Kids

Basic Introduction to the Stock Market for Kids
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The stock market may seem vast and intimidating with high-roller buying and selling of stocks. You can bring the market down to a manageable size to understand this financial arena with some basic information. Once you learn a few details, you might even want to dabble in the market to test the financial waters.

New York Stock Exchange History

A buttonwood tree marked the spot where 24 stockbrokers congregated in 1792 to sign an agreement to buy and sell stocks and bonds on a commission basis. More than 200 years later, this momentous meeting is known as the “Buttonwood Agreement,” and it has prestige as the birth of the New York Stock Exchange.

Defining Stock

Some businesses choose to raise money to meet expenses by selling units of ownership in the company, an action that's called “going public.” These units of ownership are “stocks.” With this revenue, a company might research and roll out new products, overhaul existing products, attract new employees to the payroll or make improvements to the physical building that houses the business. People who buy stock in a company become shareholders, and shareholders own a piece of the business. Stock value will increase if the company’s profits go up, and stock prices will fall if the company loses money. Shareholders could make money by selling stock when the price is higher than the purchase price. Likewise, shareholders would take a loss by selling the stock when the price is lower than the purchase price.

Market Trends

In a strong economy, the stock market tends to follow suit with a bull market. Investors often gain confidence from the strong economy and buy additional stocks. Stock market activity with a glut of buyers wanting shares at high prices tends to cause prices to rise even higher. When the market declines and the economy slows, the stock market becomes a bear market. Inflation rises, investor confidence gets shaky and demand for stocks plummets.

Watching the Market

To get an idea of what specific stocks do, graph daily ups and downs of a few different stock prices over a few weeks or a month. Visit the NYSE website to follow specific company stock prices, or check out the finance web page of a news website such as CNN or MSN. By watching market activity, you can get an idea of trends so you can identify a bear or bull market.

Investing in Stocks

Once you have a basic understanding of the stock market, you might be ready to experiment with a minor investment. You might find this exercise more enjoyable if you choose a company you know and love -- a fast food giant or a mega computer company, for example. Once you have a company you want to start with, buy one share of stock. Depending on the company, you might buy it directly or you might be better off using a broker.