The Stock Market The best way to explain how the stock market works is to【1】_____that you get together with

The Stock Market
   The best way to explain how the stock market works is to imagine that you get together with four of your friends and form a company to produce a soda with a new flavor, which you are going to sell in a pressurized can. You find that you need ＄ 600 for the expenses involved in starting the business. One of you contributes ＄ 200; a second, only ＄50; a third, ＄150; a fourth, ＄100; and the fifth, also ＄100. In order to be clear to everyone, you decide that each of you will be given sheets of paper on which it is stated that every sheet of paper represents ＄10 of the present value of the company. This means that there will be 60 sheets of paper altogether. The person who contributed ＄200 will receive 20 of these sheets, while the one who gave ＄ 50 will get 5.    If you gave ＄100, then you will receive 10 of these sheets. Each sheet, which is called a stock certificate, actually indicates that you own 1 share of stock in the company. Therefore, you now own 10 shares in the company. To own a share signifies that you are a part owner of the company.
   Imagine now that when people taste the soda they want to drink more and more of it. In fact, business is so good that the original ＄ 600 invested by the five of you jumps to ＄1,800 in value. Thus, the 60 shares of stock that were originally worth ＄10 each are now worth ＄ 30 each. This means that your 10 shares have jumped in Value to ＄ 300. If you want to sell some or all of these shares to anyone else, the price will be ＄ 30 per share.
   However, in time business may take a turn for the worse. People find that the pressurized can does not work well—the spray of soda goes everywhere. It isn’t long then before the value of the company drops from a high point of ＄1,800 to a low point of ＄ 300. When this happens, each of the 60 shares, which were worth ＄ 30, is now worth ＄ 5. Hence, people who want to buy the shares will now pay only ＄ 5 each for them.
   Most companies today get started in exactly the same way. as the small soda company above. Since a great deal of money is needed to operate a business, a great many people are needed to become part owners. When a company is first organized and shares are sold, it is relatively simple to determine the value of each share; because all the shares together represent the total value of the company.
   But how can you go about buying stocks? It is very unlikely that you would personally know someone who happens to own shares in the company in which you wish to invest. Hence, you will probably go to a stockbroker—a man who buys and sells stock for other people. He, in turns will go to a stock market—a place where stocks are bought and sold. There he will inquire of other brokers if they know of anyone who would like to sell the stock that you want to purchase. Usually there will be some such persons. In that event, your broker will arrange to buy the stock for you and then bill you not only for the amount he had to pays but also a small additional fee to cover the cost of his services.
   In the event you want to sell some stocks that you hold, you would follow exactly the same procedure. Now, however, the broker would turn over to you the amount he had received from the buyer, only withholding a small amount to pay for his services. Thus, you have to pay the broker at, the time he buys the stock for you and again at the time he sells it for you. This isn’t all, though. You may also have to pay a tax each time you sell stock—and, sometimes—when you buy it. In addition, the owners of the place where the stock is bought or sold may also charge a small fee for the privilege of using their facilities. It appears that if you plan to sell your stock at some gain to yourself, you bad better wait until its value increases by at least a few dollars on each shares or you may find that what you thought was a profit for you is actually eaten up by the many fees you had to pay.