Insurance and Credit

Basically, there are two different ways to earn money investing in the stock market. First, there are dividends. Dividends are paid out of a companies profits when they want to pay their shareholders. They are usually paid quarterly and an amount is given per share. For example, they might give 50 cents per share each quarter. If you had 100 shares, you’d be paid $50 a quarter or $200 a year.

The other way to make money through investing is through capital gains. If you bought 100 shares for $4 a share at $400 and the price increases to $5 per share, when you sell it at $500, you’ll have a total capital gain of $100.

This is basically how it works, oversimplified. If a stock is selling for $5, there are 100,000 shares up for sale, and 100,000 shares are being bought or ordered, the price will stay the same because the exact amount of demand is being supplied since it has cost $5. If the there are 100,000 shares up for sale, and 200,000 shares are being bought or ordered, the price will go up because the demand has surpassed the supply.

More people want to buy than are willing to sell therefore, the price must go up in order. If there are 100,000 shares up for sale, and 50,000 shares are being bought or ordered, they must lower the price in order to get more people to buy.

Let’s use a department store selling jeans as a real world example for supply and demand. If they are selling 30 pairs of jeans at $50 each and only sell 10 pairs in the first week, they will need to bring down the price so that more people begin to buy the jeans. With a lower price, more people can afford them and will be willing to buy them.

On the other hand, if they only put out 10 of the pairs to begin with and they flew off the shelves in one day, they would increase the price on the rest to decrease the amount of people willing to pay for them in order to meet demand. They will also make more money this way, which is why most sellers want to increase the demand without decreasing the price.