The Stock Market: The Broker
“Now, if everyone who owned shares went to the stock market and put their hands up there would be a lot of hands up and no one would get anything done. So, the clever folks at the stock market put a guy in the middle of the buyers and sellers. This chap is called a Broker. His role is to help a buyer find a seller and vice versa.
When you take your share of Cronut Bakery and go to the stock market, the broker finds you someone who wants to buy a share in the same bakery. This way, he matches you selling a share to someone who wants to buy the same share.
In the old days, the brokers would go in person to the markets. Now, most of it is done online and these transactions to buy and sell are usually done in seconds.”
“That’s nice of the broker to help people” said Mira.
Grandma laughed. “Oh they don’t do it for free! Brokers charge a fee every time they buy and sell a share. That’s how they make money.”
“I don’t understand. Why you would go through all the trouble of buying a share if you are going to sell it?” asked Mira.
“Well, people buy and sell shares for different reasons. You could sell a share if you need the money. Or you can sell it if you don’t think the price of the share will go up any more.”
“But if the price of the share won’t go up then why would anyone else buy it?” asked Teyus.
“Well, no one really knows how the stock market will perform. So while one person may think that the price of this particular share cannot go further up, someone else may think that the price of the shares can rise a lot more in the future. You see, even though some people claim to know how the market works, really no one can predict the outcome.”
“But Daddy says that his friend at work knows everything about the stock market” quipped Mira.
“Bah! Baloney! The stock prices go up and down based on many things. The most important of this is how many people want to buy stocks in a company (this is called "demand") and how many people want to sell stocks in a company (this is called "supply"). Like everything else, when more people want to buy it, the price goes up because they will pay more for it. When more people are selling, the price of that particular stock goes down as there is more available in the market.
Now, what causes this “demand” or “supply” of stocks on the stock market is a bunch of things. For example, maybe a new toy has been released and all the kids want that toy, so the demand for that toy company is bound to be more and this will push the price of that share higher, or maybe there is a report in the press about soda drinks being really bad for you, so demand will go down and this will move the price of the share down.”