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Contributor: Elephango Editors. Lesson ID: 12303
Take a ride through the ups and downs of the stock market and learn how to make smart money moves!
What If Your Cupcake Idea Made You Rich?
Imagine this: You come up with the best cupcake recipe ever. People are begging for more, and you’re selling out every day. But there’s a problem—you don’t have enough money to buy all the ingredients, packaging, or maybe even a food truck.
You ask for help. “If you give me ten dollars now, I’ll give you twelve dollars later,” you say.
Three people say yes. They each give you ten dollars, and one superfan gives you thirty. In return, you give them a promise on paper—a share of your future cupcake empire.
This isn’t just a tasty dream. It’s actually a small version of how the stock market works. Businesses need money to grow, and people invest money hoping to earn more back.
Break it all down here.
What Is the Stock Market and How Does It Work?
What Is a Stock?
A stock is like a tiny piece of a company. When you buy a stock, you’re buying a small piece of that company—just like your friends who gave you money and got “shares” in your cupcake business.
If the company does well and makes money, your stock becomes more valuable. If the company doesn’t do so well, your stock could lose value.
What Is the Stock Market?
The stock market is a place where people buy and sell these shares. It's kind of like a giant online store for business pieces.
Companies “go public” and sell stocks to raise money, just like you did for your cupcake startup. Investors (people who buy stocks) are hoping those stocks go up in value so they can sell them later for more than they paid.
Why Do Companies Use the Stock Market?
Companies sell stock to raise money so they can grow—maybe open new stores, invent cool products, or hire more workers. Instead of taking out a loan, they offer part of the company to investors.
Why Do People Buy Stocks?
Because they want to earn money. If you buy a stock at $10 and later sell it for $20, you made a $10 profit. Some companies even share profits through small payments called dividends.
What Makes a Stock Go Up or Down?
Let’s go back to cupcakes. If your cupcakes are flying off the shelves, more people want to invest in your business. More demand = higher value.
But if you burn every batch or run out of frosting, fewer people will want your stock. That’s when the value goes down.
This happens in the real world every day. A new iPhone could boost Apple’s stock. A scandal might drop a company's stock overnight.
Stocks go up and down based on news, business success, the economy, and even people’s feelings about the future.
How Do People Track Stocks?
Investors look at stock charts to decide what to buy or sell. Here’s what they usually check.
Company: The name or abbreviation (like AAPL for Apple).
Price: How much it costs to buy one share.
Change: How much the price went up or down.
% Change: The price change shown as a percentage.
Green numbers usually mean prices went up. Red means they dropped.
Some stocks cost hundreds or even thousands of dollars. Others cost just a few bucks. The price doesn’t always mean a company is better or worse—it depends on how many shares exist and how valuable investors think the company is.
Bull vs. Bear Markets
You might hear people say the market is a “bull” or a “bear.” These are just nicknames that describe how the stock market is doing overall.
A bull market happens when prices are going up and people feel confident about the economy. It’s like the market is charging ahead, just like a bull.
A bear market is the opposite—prices are falling and investors are nervous. Like a bear, the market is backing off or hibernating.
These terms help investors quickly describe what kind of mood the market is in.
Now that you know how the stock market works, see what you can do with that knowledge.
Head to the Got It? section!
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