Stock Market 101: How It Works and How to Get Started

Maybe you never took Economics 101, and the Wall Street Journal might as well be written in a foreign language for all the sense it makes to you. But perhaps for the first time in your life

you have some money saved, but the 2.5 percent interest you're earning on it in your savings account isn't what you need it to be. It's time to invest in the stock market. Problem is, you don't know the first thing about it. You've come to the right place. Let's start at the beginning.

The stock market allows anyone to purchase a part of any publicly held company — that is, any company that sells stock to investors. In this way, the stock market raises capital that a company can use to continue producing its product or offering its service. In return for the use of investors' money, if the company does well, investors get to share in the profit. However, if the company does poorly, investors see a loss.

How does the stock market work?
Imagine there's a company called Widget Inc. that makes all kinds of gadgets and toys you like to play with. If you think it would be fun to own a part of that company, you can buy shares of Widget Inc. stock. As long as Widget Inc. is able to generate a profit, the shares you buy will increase in value. But if the toy market takes a downturn, the company may begin to lose money. You will also lose money as other investors sell off their stock and the value of your stock plummets.