8 ms·

How the Stock Market Works

140 points by blrboy 7y ago

1e-9 7y ago
"Just like how taking the derivative of a function gives you the slope, a derivative in finance is a bet on the rate of change of the value of a stock, or a bond, or an index." No. That is just completely wrong. A derivative is a financial instrument that derives value from other things. As an aside, the derivatives market is far bigger than the stock market.
- H8crilA 7y ago
  Derivatives is a difficult to asses market, in terms of size. For example, the largest derivatives markets out there - interest rate swaps - trade contracts that usually have ~zero net value at the beginning of their lives, when the sides open the contract. Derivatives typically start small and sometimes end up huge. The investable universe looks something like that: https://imgur.com/a/68U3LsZ https://imgur.com/a/68U3LsZ
- Phillipharryt 7y ago
  I think the writer was trying to write something cute and smart there with that connection, if only it was actually correct.
revx 7y ago
Great article, thank you. I still don't understand who buys and sells stocks. Is there just that much volume that if I decide to sell at a certain market price, there's guaranteed to be a buyer? Or could I decide to sell at market price but nobody actually accepts the transaction? There's some financial magic at work here that I don't quite understand.
- gchokov 7y ago
  You are partially right. What you miss is that there are the so called market makers - exchanges that ensure liquidity. They buy from you and sell to you while managing order books. These are simply trades records that have a key role in determining the price pressures for it go up or down.
  - abfar 7y ago
    In addition, the market makers gain profit from this activity by buying at a slightly lower price than the selling price.
  - gjvc 7y ago
    > exchanges that ensure liquidity "market participants" which provide liquidity on an exchange.
    - gchokov 7y ago
      The exchange itself has a goal to ensure liquidity. Do you really think all your orders are instant because there's somebody on the other side to buy it? I mean, yeah, right - for the very common stocks this is the case, but what about those low liquidity stocks that are still being executed instantly?
      - thedufer 7y ago
        The exchange can't trade on their own platform, it would be a massive conflict of interest. The liquidity is typically provided by market makers, who are given incentives to do so. They also get to capture the spread, which is itself fairly valuable. You don't need a conspiracy theory to explain it.
- rolltiide 7y ago
  In the US, the government makes sure the answer to that question is “yes”. Regulation NMS
- skybrian 7y ago
  "Market makers" ensure that at any time, there are standing orders to buy/sell that are close to the current market price (the difference is called the spread). If you buy/sell at market price, you are taking an existing offer at their price. You could also do what they do. Instead of buying immediately at market price, you could enter a lower price and create a standing order to buy at that price. However, if the price goes up, you might miss out on buying the stock at all. Similarly for selling. You can enter a higher price, but it won't sell if the market price doesn't go up. Conceptually this isn't so different from what a grocery store does. They offer something for sale and wait for a buyer willing to pay that price. However, margins are much lower and prices change much quicker for stocks. (Note: I'm not recommending messing with any of this.)
- bonestamp2 7y ago
  The market price is (basically) the highest price that someone else is bidding to buy at, so your offer to sell at that price guarantees there is a buyer because the buyer's bid for stock at that price is already there when you place your offer to sell. It can get a little more complicated than that though -- you might be trying to sell 1000 shares and the highest bid might only be for a quantity of 500 so the "market" price for your first 500 shares will be different than the next 500 (unless there are other bids at that same price, which there often are but there's no guarantee on the volume you'll be able to sell at that price). And that's why they call it a stock exchange... it's just a bunch of people (and companies) making bids and offers to "exchange" stocks at difference prices. When a buyer and a sell agree on a price, you have a transaction (trade). Your offer to sell at market price is just an agreement between you and someone else willing to buy at that price.
- aeternus 7y ago
  There is pretty much always someone willing to buy or sell a stock at some price. The best way to think of the exchanges are as a perpetual auction. There is a line of buyers willing to buy shares at all different prices, and similarly there is a line of sellers willing to sell at various prices. Anyone can 'join the line' by entering a limit order at some price. Buying at market price simply means you immediately buy from the seller offering the lowest price. It's very rare for an order book to be empty for a particular stock, but you typically do see the bid/ask spread increase as a stock loses popularity.
thesumofall 7y ago
I think the one important lesson that is missing here is: never ever try to be smarter than the market except you have money to lose and you like to gamble.
- bonestamp2 7y ago
  What does that mean... don't try to buy individual stocks, just buy the index?
- Fnoord 7y ago
  Depends. You can invest low risk (yielding say only 5% yearly profit). If a big company which is supposedly stable falls (such as Morgan Stanley) you may get lose a little but since you spread enough not so much. You get income than the interest from your bank this way. While in EU you get guaranteed 100.000 EUR when a bank collapses, but if shit really hits the fan (crisis, many companies collapsing, EUR or USD losing a lot of value) you are toasted regardless.
- uptownfunk 7y ago
  Except I think the only way to make any serious money in the market is to bet against it when things are over/under valued, and of course.. be right.
- deleted 7y ago
  [deleted]
- wangarific 7y ago
  It's less about being "smarter," it's really about identifying your advantage and understanding whether you can exploit it. This could be something as obvious as an information advantage (insider trading) to simply having more time/patience. If you can buy and hold for decades, you can wait out the bumps, the people who are forced to sell, and for more money to enter the market.
AznHisoka 7y ago
“It’s a zero-sum game, because there are always winners and losers in the stock market.” Is this true, outside of options? Most people are long and the stock market has always been on an uptrend.
- rlayton2 7y ago
  Yeah, I don't think it is true - as a secondary function, shares can occasionally give dividends.
  - fsloth 7y ago
    Funny you say as a 'secondary'. Dividends are the main reason I personally like stocks as long term investment.
    - H8crilA 7y ago
      According to Rober Shiller's long term data on the American stock market - from 1871 to 2019 the stock market advanced by 2.323% yearly on average without dividends, and 6.836% yearly on average with dividends reinvested. Both figures after inflation. That amounts to total gains of 2'900% and 1'780'000%, respectively. https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/ Dividends make a massive difference. It's in fact not a secondary but a primary driver of long term profit.
  - onion2k 7y ago
    shares can occasionally give dividends Shares don't give dividends. Companies give dividends. Shares are just how they work out who to give the money to.
- unicornmama 7y ago
  No, it’s idiotic. Companies in in aggregate enjoy earnings growth. Ergo why what you buy today is worth more tomorrow.
- MacroAffairs 7y ago
  Even for options it doesn't have to be zero sum. E.g. you could give someone insurance on their stock position if you can take the risk. This allows them to participate in the game so you both benefit. Another is that you might be able to lend more cheaply than the other can loan but they want to leverage up their portfolio. With options you can effectively make a cheaper loan to them to purchase a specific product. They lend more cheaply, you make part of the spread.
dcaisen 7y ago
For an even deeper dive, you can check out the stock market primer our team published a couple weeks ago: https://primer.prooftrading.com https://primer.prooftrading.com
sgjohnson 7y ago
>It’s a zero-sum game, because there are always winners and losers in the stock market. Not really. Yes, there are winners and losers, but my win doesn’t equate your loss.
- Traster 7y ago
  And it's also worth remembering that the stock market has increased in value (inflation adjusted) for decades. So whilst yes, it's true there are winners and losers, most of the time the winners outnumber the losers.
jnordwick 7y ago
This whole article is terrible: > derivative in finance is a bet on the rate of change of the value of a stock No. At least no more than an equity is also based on the change in value of the company. At best it is just a terrible way to describe it. It is a derivative because it derives it's value from the underlying. You can get rid of the "rate" part and it would be more correct. > The New York Stock Exchange is a company that maintains a database that is a one-stop shop for people who want to trade stocks and other fancy financial instruments. Don't even know where to begin with how misleading that is. > that is a reflection of a section of the stock market performing “well”, in the sense of investors making money4 on their stock investments. Not really. It is the value of the companies going up. I'm sure many are losing money too in both a real sense and a "I shouldn't have have sold" opportunity cost regret. > Depending on what the Fed’s interest rate is, you could conceivably buy a bond off of somebody for lesser than the principal. Nope. The feds target overnight rate has very little to do with how bonds outside the very short end, and nothing to do with the long end most people would be buying. > It’s a zero-sum game, because there are always winners and losers in the stock market. Not really. While each individual trade is zero sum, the collection of them creates more efficient capital flows and helps they health of the market in a very general sense. Without the traders, the market would dry up and nobody would make any money from it.
H8crilA 7y ago
One thing that you have to in your life is to choose your risk exposure to typical assets: cash, bonds (in particular long term bonds), stocks, real estate, and maybe commodities (like gold, or maybe Bitcoin for the courageous). Sharpe ratio is a good way to measure risk/return. You have 100% at any given point, where does it go? Not buying anything is going 100% cash. That's why you have to do it - you're always in some exposure. Then you can always lever up securities, effectively going negative on cash. Example: 105% stocks, 195% long term bonds, -200% cash can be achieved by going 35% UPRO, 65% TLT; only for the brave souls among us that do not fear a 300% leverage. This is roughly how the Bridgewater All-Weather Fund operates (AFAIK you can choose your leverage level there). Many households are quite levered up by getting a mortgage. A mortgage with downpayment of 20% results in 1/0.2 = 500% leveraged exposure to the real estate market (slowly declining over time as the principal is paid, or if the house appreciates in value).
- im3w1l 7y ago
  Mortgages have the advantage that you can't get margin called at an inopportune moment.
  - H8crilA 7y ago
    But the bank that has your mortgage on their balance sheet can get margin called. Ask Lehman Brothers how does that happen :)
  - jacobkranz 7y ago
    I heard through a realtor / friend that during '08 there were some home equity loans that were called back though. I don't know the exact details of those who had their HEL's called but my friend stressed that mortgages would never be called back (unless capitalism collapses) but HEL's could be even if you're making on-time payments depending on terms.
    - tomatocracy 7y ago
      It's also not uncommon to see maintenance (ie tested every x month, not just on initial borrowing) loan to value covenants in commercial Real Estate lending, including at quite small scale (think small independent hotels and the like).
kelnos 7y ago
I was expecting something a lot more detailed. I got to the end and was wondering if this was the first part of a series, since it's nowhere near "everything" anyone would want to know about the stock market. It's barely an introduction. Then there are the inaccuracies. Zero-sum game? No. Derivatives are "a bet on the rate of change" in value? No. Brokers "help you execute a trade at the best possible price"? Well... not really. The NYSE is a "one stop shop" for people who want to trade? Um, NASDAQ? Any number of non-US exchanges? Overall, very disappointing.
- skgoa 7y ago
  Yeah, this really isn't a good article.
- Phillipharryt 7y ago
  I think the writer has confused themselves while attempting to simplify some of these concepts. Instead they should have accepted the financial market is complicated and cannot be condensed into a single blog post.
- abbasaamer 7y ago
  For anyone who is really looking to understand how the stock market works, I would recommend picking up a copy of "Trading and Exchanges: Market Microstructure for Practitioners" by Larry Harris.
- evrydayhustling 7y ago
  Bond market is off too - bond writers don't set the rate, they just describe the payment schedule and auction it off. Market determines a price, which implicitly sets the rate. It seems like an earnest effort by the author. I'd encourage them to find a pro to run this piece by as a further learning experience. When you stop getting edits, you are ready to teach a simplified version to others!
- Legogris 7y ago
  The very first line: > This is Part 1 of a series. I am not claiming to be an expert by any means, this is just an effort for me to internalize things I’ve learnt.
ww520 7y ago
Not understanding why this blog is so highly upvoted. It's just poorly written. Someone starting trading on Robinhood is just screaming I'm a financial newbie. Is the market peaking? With so many clueless entering the market. Where would be the next herd of new blood?
bradwood 7y ago
Stock is equity in a company. A stock market is where, by and large, publicly listed stock is traded. So why then, all this talk of bonds and governments? Most debt does not trade on a stock market, but via other mechanisms. The author doesn’t have a good definition of “stock” which is worrisome in the extreme.
bedobi 7y ago
How can these wildly inaccurate posts about medicine, economics and finance keep getting so many upvotes?
countryqt30 7y ago
To get started, I recommend the McKinsey starter's videos at https://www.youtube.com/channel/UCJetbEO3QGCosQHb_43jVNg/featured?disable_polymer=1 https://www.youtube.com/channel/UCJetbEO3QGCosQHb_43jVNg/fea...
- FearNotDaniel 7y ago
  I think you mean, a personal channel by a former McKinsey consultant.
fitech 7y ago
I think there is a desire among people to have a simple guide to what markets are and why they exist, so I applaud the author on the idea and the intent. However, many of the ideas are misunderstood. A couple months of playing around with a stock trading app and maybe reading some blog posts will not teach you what markets are or why they exist. For quite some time, a significant amount of brain power has gone into understanding and improving markets. All of this work has resulted in significant complexity. If I had to pick a place to start, were I to teach someone "Everything they ever wanted to know about the stock market," It would actually be with bonds. Lending money has been around for millennia. It is an amazingly simple, yet incredibly useful, idea. It's also extremely useful as a way of teaching someone about equity. Bonds and equities are intricately linked in their development and in the theory of valuation.
deleted 7y ago
[deleted]
marsRoverDev 7y ago
This falls far short of "Everything You Ever Wanted To Know About The Stock Market But Were Too Afraid To Ask". Does anyone have a source that actually begins to explain thi stuff? I want something that goes into long/short, that begins to take a stab (in simple terms) at how to analyse a company's finances to identify red flags, or reasons why investing might be a good idea.
rv-de 7y ago
An awkwardly written summary of the Wikipedia page on "stock exchange".
segmondy 7y ago
This article is garbage, many books have been written on the market. Please search for the real classics and pick one up.
QuantumGood 7y ago
Serious question. How does an article like this get so many upvotes, followed by lots of comments saying the content is not upvote-worthy?

140 points by blrboy 7y ago

1e-9 7y ago

"Just like how taking the derivative of a function gives you the slope, a derivative in finance is a bet on the rate of change of the value of a stock, or a bond, or an index." No. That is just completely wrong. A derivative is a financial instrument that derives value from other things. As an aside, the derivatives market is far bigger than the stock market.

H8crilA 7y ago
Derivatives is a difficult to asses market, in terms of size. For example, the largest derivatives markets out there - interest rate swaps - trade contracts that usually have ~zero net value at the beginning of their lives, when the sides open the contract. Derivatives typically start small and sometimes end up huge. The investable universe looks something like that: https://imgur.com/a/68U3LsZ https://imgur.com/a/68U3LsZ
Phillipharryt 7y ago
I think the writer was trying to write something cute and smart there with that connection, if only it was actually correct.

revx 7y ago

Great article, thank you. I still don't understand who buys and sells stocks. Is there just that much volume that if I decide to sell at a certain market price, there's guaranteed to be a buyer? Or could I decide to sell at market price but nobody actually accepts the transaction? There's some financial magic at work here that I don't quite understand.

gchokov 7y ago
You are partially right. What you miss is that there are the so called market makers - exchanges that ensure liquidity. They buy from you and sell to you while managing order books. These are simply trades records that have a key role in determining the price pressures for it go up or down.
- abfar 7y ago
  In addition, the market makers gain profit from this activity by buying at a slightly lower price than the selling price.
- gjvc 7y ago
  > exchanges that ensure liquidity "market participants" which provide liquidity on an exchange.
  - gchokov 7y ago
    The exchange itself has a goal to ensure liquidity. Do you really think all your orders are instant because there's somebody on the other side to buy it? I mean, yeah, right - for the very common stocks this is the case, but what about those low liquidity stocks that are still being executed instantly?
    - thedufer 7y ago
      The exchange can't trade on their own platform, it would be a massive conflict of interest. The liquidity is typically provided by market makers, who are given incentives to do so. They also get to capture the spread, which is itself fairly valuable. You don't need a conspiracy theory to explain it.
rolltiide 7y ago
In the US, the government makes sure the answer to that question is “yes”. Regulation NMS
skybrian 7y ago
"Market makers" ensure that at any time, there are standing orders to buy/sell that are close to the current market price (the difference is called the spread). If you buy/sell at market price, you are taking an existing offer at their price. You could also do what they do. Instead of buying immediately at market price, you could enter a lower price and create a standing order to buy at that price. However, if the price goes up, you might miss out on buying the stock at all. Similarly for selling. You can enter a higher price, but it won't sell if the market price doesn't go up. Conceptually this isn't so different from what a grocery store does. They offer something for sale and wait for a buyer willing to pay that price. However, margins are much lower and prices change much quicker for stocks. (Note: I'm not recommending messing with any of this.)
bonestamp2 7y ago
The market price is (basically) the highest price that someone else is bidding to buy at, so your offer to sell at that price guarantees there is a buyer because the buyer's bid for stock at that price is already there when you place your offer to sell. It can get a little more complicated than that though -- you might be trying to sell 1000 shares and the highest bid might only be for a quantity of 500 so the "market" price for your first 500 shares will be different than the next 500 (unless there are other bids at that same price, which there often are but there's no guarantee on the volume you'll be able to sell at that price). And that's why they call it a stock exchange... it's just a bunch of people (and companies) making bids and offers to "exchange" stocks at difference prices. When a buyer and a sell agree on a price, you have a transaction (trade). Your offer to sell at market price is just an agreement between you and someone else willing to buy at that price.
aeternus 7y ago
There is pretty much always someone willing to buy or sell a stock at some price. The best way to think of the exchanges are as a perpetual auction. There is a line of buyers willing to buy shares at all different prices, and similarly there is a line of sellers willing to sell at various prices. Anyone can 'join the line' by entering a limit order at some price. Buying at market price simply means you immediately buy from the seller offering the lowest price. It's very rare for an order book to be empty for a particular stock, but you typically do see the bid/ask spread increase as a stock loses popularity.

thesumofall 7y ago

I think the one important lesson that is missing here is: never ever try to be smarter than the market except you have money to lose and you like to gamble.

bonestamp2 7y ago
What does that mean... don't try to buy individual stocks, just buy the index?
Fnoord 7y ago
Depends. You can invest low risk (yielding say only 5% yearly profit). If a big company which is supposedly stable falls (such as Morgan Stanley) you may get lose a little but since you spread enough not so much. You get income than the interest from your bank this way. While in EU you get guaranteed 100.000 EUR when a bank collapses, but if shit really hits the fan (crisis, many companies collapsing, EUR or USD losing a lot of value) you are toasted regardless.
uptownfunk 7y ago
Except I think the only way to make any serious money in the market is to bet against it when things are over/under valued, and of course.. be right.
deleted 7y ago
[deleted]
wangarific 7y ago
It's less about being "smarter," it's really about identifying your advantage and understanding whether you can exploit it. This could be something as obvious as an information advantage (insider trading) to simply having more time/patience. If you can buy and hold for decades, you can wait out the bumps, the people who are forced to sell, and for more money to enter the market.

AznHisoka 7y ago

“It’s a zero-sum game, because there are always winners and losers in the stock market.” Is this true, outside of options? Most people are long and the stock market has always been on an uptrend.

rlayton2 7y ago
Yeah, I don't think it is true - as a secondary function, shares can occasionally give dividends.
- fsloth 7y ago
  Funny you say as a 'secondary'. Dividends are the main reason I personally like stocks as long term investment.
  - H8crilA 7y ago
    According to Rober Shiller's long term data on the American stock market - from 1871 to 2019 the stock market advanced by 2.323% yearly on average without dividends, and 6.836% yearly on average with dividends reinvested. Both figures after inflation. That amounts to total gains of 2'900% and 1'780'000%, respectively. https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/ Dividends make a massive difference. It's in fact not a secondary but a primary driver of long term profit.
- onion2k 7y ago
  shares can occasionally give dividends Shares don't give dividends. Companies give dividends. Shares are just how they work out who to give the money to.
unicornmama 7y ago
No, it’s idiotic. Companies in in aggregate enjoy earnings growth. Ergo why what you buy today is worth more tomorrow.
MacroAffairs 7y ago
Even for options it doesn't have to be zero sum. E.g. you could give someone insurance on their stock position if you can take the risk. This allows them to participate in the game so you both benefit. Another is that you might be able to lend more cheaply than the other can loan but they want to leverage up their portfolio. With options you can effectively make a cheaper loan to them to purchase a specific product. They lend more cheaply, you make part of the spread.

dcaisen 7y ago

For an even deeper dive, you can check out the stock market primer our team published a couple weeks ago: https://primer.prooftrading.com https://primer.prooftrading.com

sgjohnson 7y ago

>It’s a zero-sum game, because there are always winners and losers in the stock market. Not really. Yes, there are winners and losers, but my win doesn’t equate your loss.

Traster 7y ago
And it's also worth remembering that the stock market has increased in value (inflation adjusted) for decades. So whilst yes, it's true there are winners and losers, most of the time the winners outnumber the losers.

jnordwick 7y ago

This whole article is terrible: > derivative in finance is a bet on the rate of change of the value of a stock No. At least no more than an equity is also based on the change in value of the company. At best it is just a terrible way to describe it. It is a derivative because it derives it's value from the underlying. You can get rid of the "rate" part and it would be more correct. > The New York Stock Exchange is a company that maintains a database that is a one-stop shop for people who want to trade stocks and other fancy financial instruments. Don't even know where to begin with how misleading that is. > that is a reflection of a section of the stock market performing “well”, in the sense of investors making money4 on their stock investments. Not really. It is the value of the companies going up. I'm sure many are losing money too in both a real sense and a "I shouldn't have have sold" opportunity cost regret. > Depending on what the Fed’s interest rate is, you could conceivably buy a bond off of somebody for lesser than the principal. Nope. The feds target overnight rate has very little to do with how bonds outside the very short end, and nothing to do with the long end most people would be buying. > It’s a zero-sum game, because there are always winners and losers in the stock market. Not really. While each individual trade is zero sum, the collection of them creates more efficient capital flows and helps they health of the market in a very general sense. Without the traders, the market would dry up and nobody would make any money from it.

H8crilA 7y ago

One thing that you have to in your life is to choose your risk exposure to typical assets: cash, bonds (in particular long term bonds), stocks, real estate, and maybe commodities (like gold, or maybe Bitcoin for the courageous). Sharpe ratio is a good way to measure risk/return. You have 100% at any given point, where does it go? Not buying anything is going 100% cash. That's why you have to do it - you're always in some exposure. Then you can always lever up securities, effectively going negative on cash. Example: 105% stocks, 195% long term bonds, -200% cash can be achieved by going 35% UPRO, 65% TLT; only for the brave souls among us that do not fear a 300% leverage. This is roughly how the Bridgewater All-Weather Fund operates (AFAIK you can choose your leverage level there). Many households are quite levered up by getting a mortgage. A mortgage with downpayment of 20% results in 1/0.2 = 500% leveraged exposure to the real estate market (slowly declining over time as the principal is paid, or if the house appreciates in value).

im3w1l 7y ago
Mortgages have the advantage that you can't get margin called at an inopportune moment.
- H8crilA 7y ago
  But the bank that has your mortgage on their balance sheet can get margin called. Ask Lehman Brothers how does that happen :)
- jacobkranz 7y ago
  I heard through a realtor / friend that during '08 there were some home equity loans that were called back though. I don't know the exact details of those who had their HEL's called but my friend stressed that mortgages would never be called back (unless capitalism collapses) but HEL's could be even if you're making on-time payments depending on terms.
  - tomatocracy 7y ago
    It's also not uncommon to see maintenance (ie tested every x month, not just on initial borrowing) loan to value covenants in commercial Real Estate lending, including at quite small scale (think small independent hotels and the like).

kelnos 7y ago

I was expecting something a lot more detailed. I got to the end and was wondering if this was the first part of a series, since it's nowhere near "everything" anyone would want to know about the stock market. It's barely an introduction. Then there are the inaccuracies. Zero-sum game? No. Derivatives are "a bet on the rate of change" in value? No. Brokers "help you execute a trade at the best possible price"? Well... not really. The NYSE is a "one stop shop" for people who want to trade? Um, NASDAQ? Any number of non-US exchanges? Overall, very disappointing.

skgoa 7y ago
Yeah, this really isn't a good article.
Phillipharryt 7y ago
I think the writer has confused themselves while attempting to simplify some of these concepts. Instead they should have accepted the financial market is complicated and cannot be condensed into a single blog post.
abbasaamer 7y ago
For anyone who is really looking to understand how the stock market works, I would recommend picking up a copy of "Trading and Exchanges: Market Microstructure for Practitioners" by Larry Harris.
evrydayhustling 7y ago
Bond market is off too - bond writers don't set the rate, they just describe the payment schedule and auction it off. Market determines a price, which implicitly sets the rate. It seems like an earnest effort by the author. I'd encourage them to find a pro to run this piece by as a further learning experience. When you stop getting edits, you are ready to teach a simplified version to others!
Legogris 7y ago
The very first line: > This is Part 1 of a series. I am not claiming to be an expert by any means, this is just an effort for me to internalize things I’ve learnt.

ww520 7y ago

Not understanding why this blog is so highly upvoted. It's just poorly written. Someone starting trading on Robinhood is just screaming I'm a financial newbie. Is the market peaking? With so many clueless entering the market. Where would be the next herd of new blood?

bradwood 7y ago

Stock is equity in a company. A stock market is where, by and large, publicly listed stock is traded. So why then, all this talk of bonds and governments? Most debt does not trade on a stock market, but via other mechanisms. The author doesn’t have a good definition of “stock” which is worrisome in the extreme.

bedobi 7y ago

How can these wildly inaccurate posts about medicine, economics and finance keep getting so many upvotes?

countryqt30 7y ago

To get started, I recommend the McKinsey starter's videos at https://www.youtube.com/channel/UCJetbEO3QGCosQHb_43jVNg/featured?disable_polymer=1 https://www.youtube.com/channel/UCJetbEO3QGCosQHb_43jVNg/fea...

FearNotDaniel 7y ago
I think you mean, a personal channel by a former McKinsey consultant.

fitech 7y ago

I think there is a desire among people to have a simple guide to what markets are and why they exist, so I applaud the author on the idea and the intent. However, many of the ideas are misunderstood. A couple months of playing around with a stock trading app and maybe reading some blog posts will not teach you what markets are or why they exist. For quite some time, a significant amount of brain power has gone into understanding and improving markets. All of this work has resulted in significant complexity. If I had to pick a place to start, were I to teach someone "Everything they ever wanted to know about the stock market," It would actually be with bonds. Lending money has been around for millennia. It is an amazingly simple, yet incredibly useful, idea. It's also extremely useful as a way of teaching someone about equity. Bonds and equities are intricately linked in their development and in the theory of valuation.

deleted 7y ago

[deleted]

marsRoverDev 7y ago

This falls far short of "Everything You Ever Wanted To Know About The Stock Market But Were Too Afraid To Ask". Does anyone have a source that actually begins to explain thi stuff? I want something that goes into long/short, that begins to take a stab (in simple terms) at how to analyse a company's finances to identify red flags, or reasons why investing might be a good idea.

rv-de 7y ago

An awkwardly written summary of the Wikipedia page on "stock exchange".

segmondy 7y ago

This article is garbage, many books have been written on the market. Please search for the real classics and pick one up.

QuantumGood 7y ago

Serious question. How does an article like this get so many upvotes, followed by lots of comments saying the content is not upvote-worthy?