HOW DOES THE STOCK MARKET WORK I'M CONFUSED HELP?

[Cool person]

OK, I got into researching the Stock Market a few days ago and the more I got into it, the more complicated it started seeing. Now, what I know is just that you have to buy and sell stocks at certain times and you either lose or gain money based on your timing. Now, I'm still confused on a couple things.

1. How do the stock prices change??? My best guess is that it is because of the demand of the stock HOWEVER what does it have to do with the actual company then? How does the COMPANY ITSELF determine IT'S OWN stock price, if my guess is correct, then the company that the stock is based on has no effect on it whatsoever which renders it useless.

2. What are dividends?

3. What is a bond?

4. Is there a purpose in the stock exchange now that you can buy stocks online or it serves a bigger purpose?

[point5]

The stock market represents ownership of a company. If you and your brother own a car, your half-ownership is a 50% share in the car. If the car turns into a classic and is worth more than you paid for it, your share is worth more - and you can sell it for more.

If it's not worth more, but I believe it will go up in value, and others believe it too - you can sell it for more based on that anticipation.

Market timing is only one way to buy and sell stocks, and it's not usually the best way. The best way is to select a company you think will do well in the long run, and invest in that company and hold on. People who invested in IBM in the 50's and 60's and left it alone are very rich right now. So are the people who bought McDonald's in the 60's and 70's, Microsoft and Apple in the 80's and 90's.

People choose stocks based on their position in their industry, their confidence in the company's management, and their financial outlook. Generally if a company has a ton of debt, it's not such a hot stock - if a company has little debt, it's probably better - but there are plenty of other ways to value a company. That will require some research on your part.

If a company's shares go down in the short term, that's not a bad thing. If it's a good company, that's probably a good thing - it means you can buy more shares.

In any 20 year period in the history of the market, the market as a whole has been up. That means that if you bought a variety of stocks that "represented" the market in any year, 20 years later you will have made money.

Some say the best way to buy stock is to "Dollar Cost Average". You can look that one up - but it means taking the same amount of money and investing in the same stock (or fund) at the same time every month, or quarter, or year, or whatever - no matter what the price is. If the price is low, you'll get more for your money. If the price is high, you won't buy as many shares. Over time, your average cost is lower, and your profits are higher - that is, if the stock generally rises.

It's not based on supply and demand, and a company doesn't determine its own stock price, except at the very beginning. In the beginning, the owners, accountants, brokers, lawyers all get together and place a value on the company, decide how many shares they want to issue, and put a value on those shares. Then they offer them for sale in an IPO - and the market determines whether they were right or not. Remember Facebook? I think their IPO started at somewhere around $40/share, but investors didn't think they were worth that. By the end of the day, the shares were selling for about $18. That's an example of how hype can drive the market - you don't want to get caught up in that. You can make a lot of quick cash, but you can also get killed. The smart investors pick quality companies that have a proven track record without a lot of debt, and stay with them for the long haul.

Dividends are profits that the company makes, that they don't want to hang on to, so they pay out a little extra per share to investors. They take the total profit and divide that by the number of shares that are outstanding and spread out the money to all owners.

Bonds are debt securities - they're loans. It's a way for a company to get operating capital without having to borrow from the bank. Let's say a company needs to raise a few million bucks - so they'll offer a bond - which is really a request to borrow money from people like you and me, in exchange for interest. The bond might be something like a 10-year bond at $1,000 and 5% - that means that you can loan this company money in $1,000 increments, and they'll pay you 5% per year on that money for ten years, at which time they'll pay you back your money. So that's $500 in your pocket for every $1,000 you loan them.

Bonds are rated by companies like Moody's, based on their assessment of the creditworthiness of the company. Generally the really strong companies offer lower interest rates - because the risk to the investor is very low. Greater risk means higher interest - but you could run the risk that the company can't pay their interest or principle, and you could lose.

You can sell a bond on the open market, too. If you have a bond with pretty low risk paying 5%, but interest rates go down - people can't get 5% at a bank - you can sell your bond to them for more than you paid for it.

If a company goes bankrupt, the bondholders are usually the first ones to get paid. The bankruptcy court will tell the company to pay off all its debts first, then whatever is left over the owners get to keep. The bonds are the debts, the stockholders are the owners.

[David]

Use Investopedia and Wiki to define financial terms.

Investopedia explains 'Dividend'
http://www.investopedia.com/terms/d/dividend.asp

One question at a time, please.

You are several years and several books away from fully understanding the markets, and can't be expected to understand it all after three days of "research."

The reason you are confused is failure to learn the basics first from defining terms. Get a good starter book like Investing for Dummies, available for free from your local library.

In any free market, stock price is determined by supply and demand, not by the company. We cannot write a book-length response in this little space about the relationships of stock price to the company and it's products, services, market share, leadership, market perception and psychology, revenues, debt ratios, etc.

When you open an account, you will be able to download a trading platform from your broker. Or download a free trial now and try it out. Every broker offers online services for when you're on the go or for checking the balances or positions of your account, but "online trading" isn't done by anyone serious about trading. A web browser is not as secure, has multiple conflicting issues with virus and phishing problems and add-ins, data overruns and data control problems, stack overflows, and does not have all of the tools and resources necessary to make good trading decisions. You will not find a broker's website with a stock screener and implied volatility, for example. You decide on a broker by what their trading platform offers that meets your needs, and everything is in one place.

Stock exchange? Purpose?
The NYSE And Nasdaq: How They Work
http://www.investopedia.com/articles/bas...103103.asp