Introduction
The stock market isn’t as boring or complicated as it may seem.
When you hear about the stock market, it often comes with confusing terms like “margin” or “volume.” This can make it sound complicated and uninteresting, especially to teens. But learning about the stock market is important for building financial knowledge, and it’s not as hard to understand as it might seem.
Investing in the stock market can teach teens valuable skills like discipline and patience. It can also be fun, like a game, to watch how the value of stocks changes over time. With the right explanation, the stock market can become an exciting topic to explore.
What Is the Stock Market?
The stock market is like an online supermarket where you can buy and sell small portions of companies, called shares. Instead of groceries or home goods, you’re buying stakes in businesses.
Here’s how it works:
- You can buy shares to own a small part of a company.
- Prices change throughout the day based on demand and news.
- You can sell your shares whenever you want.
The stock market is open Monday through Friday during working hours. It connects buyers and sellers so they can trade shares.
What Are Stock Market Indexes?
When people say the stock market is “up” or “down,” they’re usually talking about stock market indexes. A stock market index is like a list of stocks grouped together based on something they have in common.
Think of indexes as aisles in a supermarket:
- One aisle might have fruits, while another has cleaning products.
- In the stock market, an index might group together the biggest companies or companies from the same country.
Some popular stock market indexes include:
- S&P 500: The 500 biggest companies in the U.S. stock market.
- Dow Jones Industrial Average: 30 large U.S. companies that are leaders in their industries.
- Nikkei 225: Japan’s 225 largest companies.
- FTSE 100: The 100 biggest companies in the United Kingdom.
- Euro Stoxx 50: The 50 largest companies in Europe.
How Does the Stock Market Work?
The stock market has two main parts: the primary market and the secondary market.
Primary Market
When companies need money, they can sell shares of their business to the public. This process is called an initial public offering (IPO).
Here’s how it works:
- A company decides how many shares to sell and sets a price.
- People buy these shares, hoping their value will go up over time.
Secondary Market
After shares are sold in the primary market, they can be bought and sold again in the secondary market. This is where most stock market activity happens.
In the secondary market, investors trade shares among themselves. Companies are no longer involved in these transactions.
Stock Exchanges
Companies sell their shares on stock exchanges. A stock exchange is a platform where people can buy and sell shares.
Some well-known stock exchanges in the United States are:
- The New York Stock Exchange (NYSE), where shares of companies like Home Depot and Visa are traded.
- The Nasdaq, home to tech companies like Apple and Microsoft.
Each country typically has its own stock exchange, and together these exchanges make up the stock market.
How to Invest in the Stock Market
You can’t directly buy shares from a stock exchange. Instead, you need a stockbroker to help you. A stockbroker can be a person or an online platform.
Today, it’s easy to set up an account with an online broker. Once you’ve deposited money into your account, you can buy and sell shares with just a few clicks on your phone or computer.
Can Teens Invest in the Stock Market?
Teens under 18 cannot open their own stock market accounts. However, an adult can open a custodial account on their behalf. In this arrangement, the adult manages the account until the teen is old enough to take over, usually at 18 or 21, depending on the country.
Why Do Stock Prices Change?
Unlike regular stores, where prices usually stay the same, stock prices change throughout the day.
The price of a stock depends on:
- Demand: If more people want to buy a stock, its price goes up. If more people want to sell, its price goes down.
- News: Events like new government policies, economic updates, or a company’s performance report can affect prices.
For example, during a pandemic, pharmaceutical companies might see their stock prices rise, while restaurant stocks might fall.
The Stock Market and the Economy
The stock market plays a big role in the economy. It helps companies raise money to grow their businesses. These businesses create jobs and provide products and services that people use every day.
Many people also invest their savings or retirement money in the stock market, hoping it will grow. If the stock market doesn’t do well, it can hurt the economy because people might spend less, and governments may need to step in to help.
Key Terms to Know
Learning some common stock market terms can make it easier to understand:
- Ask price: The lowest price a seller is willing to accept for a stock.
- Bid price: The highest price a buyer is willing to pay for a stock.
- Broker: A person or platform that helps you buy or sell stocks.
- Bullish: Expecting stock prices to rise.
- Bearish: Expecting stock prices to fall.
- Dividend: A part of a company’s profits paid to its shareholders.
- Liquidity: How easily you can turn your stocks into cash.
- Ticker symbol: A short code that represents a company’s stock (e.g., AAPL for Apple).
- Volatility: When stock prices go up and down a lot.
How Teens Can Learn About the Stock Market
If you’re a teen interested in the stock market, there are fun ways to learn:
Stock Market Games
Many online games let you practice buying and selling stocks with fake money. This is a great way to learn without risking real money.
Books
There are books written specifically for teens about investing and the stock market. These can help you understand the basics in a simple way.
Investment Classes
Many free online classes teach the basics of investing. These can help teens build their knowledge and confidence.
Conclusion
The stock market isn’t as complicated as it seems. It’s like an online supermarket where you can buy or sell small pieces of companies.
Once you understand the basics, it becomes an exciting way to learn about money and how businesses work. For teens, this knowledge can lead to smarter financial decisions in the future.
