Howdy Wall Street Willy! I have a really big question for you.
Yes, what is it?
What is a stock?
Well, a stock is basically a very small part of a company.
Well, what do you mean? So if I buy stock, I own a company?
No, you do not own the whole company – you own part of the company.
So, do I own part of a company if I buy one little baby tiny stock?
The answer is yes, you do own part of the company if you buy one little tiny baby stock.
I have another question. Why would I want to buy a stock?
Well, you would want to buy a stock because if this company that you buy the stock in does well, then, the stock price – which is how much you bought it for – will go up.
Well then, if the stock price went up from what I bought it for, then do I make money?
No, you do not make money actually.
Well, why is that? Then what’s the point of buying a stock?
Well, if it goes up, then you have to go to your brokerage account, then sell it, and after you sell it, you get the money that its now trading for or selling for. That way, you can make money.
Or, if the stock price went down or the company didn’t do well, you might lose money. But that’s ok because stocks are a risk, and you could make a lot of money.
Okay, now that’s real good! So I could make a lot of money no matter what?
No, if the company stock goes up in value, then you can make a lot of money.
Oh, ok. Very good. But how do I know how expensive one stock is?
Well, you can look online on Yahoo Finance or any other brokerage site to find out how expensive any stock is.
Oh cool. But where can I buy a stock?
You can buy a stock online.
Well, then how do I find the exact stock that I’m looking for?
Each stock has a specific stock symbol. That symbol is only entered for that stock.
So, let’s say I’m starting a company called Fun Time Party Places. I would choose a symbol for my company that is FTPP.
Then, if you entered FTPP, then you would find the share price or stock price of my company’s one stock.
Cool! But where can I buy a stock?
You can buy a stock online from your brokerage account.
What’s a brokerage account?
Well basically, you can’t buy a stock right out of your bank account.
You need to transfer your money into your brokerage account because the brokerage account has special brokers that make the transaction for you or buy the stock or sell the stock for you.
Whoa, that’s cool! But do I have to pay the person who makes the transaction extra?
Yes, you do. The extra amount that you pay them is called a commission. The commission us usually $7-$10 per stock. Well, not really per stock, but for every amount of stock from one company.
For example, if you buy one stock of my company that I started, you would have to pay $7-$10 in the commission. But even if you bought a 1,000 stocks of the same company, you have to pay the same commission.
But, if you buy one stock of my company and another stock of a different company, you have to pay a commission for buying my stock and the other person’s stock because they are part of different companies.
Cool. Well then, if I buy the company’s product, do I own one stock automatically?
Well no, you don’t, because you are not paying to buy the stock or paying a commission.
Okay, now that all makes sense. Thanks a lot for showing me what a stock is!
Remember, finance is your friend!