What is the Stock Market? - Lesson for Kids

Instructor: Jennifer Lowery

Jennifer has taught elementary levels K-3 and has master's degrees in elementary education and curriculum/instruction and educational leadership.

Have you ever wondered what the stock market is and how it works? In this lesson, learn how people engage in trading stocks and bonds, where trading occurs, and about significant events in stock market history.

Let's Trade

Have you ever traded possessions with your best friend, like a bracelet for a cookie or one baseball card for another? This may surprise you, but adults also make trades, but in different ways. They use a system called the stock market. Let's explore exactly how this type of trading works and explore stock market events that have influenced the economy.

What is a Stock?

So what are adults trading on the stock market? The name gives you a big hint: stocks! A stock is actually a piece of a company. It's not a physical piece, like a brick or window, but a part of the ownership of a company. Stocks can be bought and sold through the stock market, and they can be different prices depending on the company and how it's doing at the time. The value of the stock depends on the profits of the company and changes constantly.

When a person pays money to buy one or more stocks for a company, they become a shareholder. This means that they own at least one stock of that company and, therefore, own part of the company. Their part may be very small or it might be large, depending on how many stocks they own.

Stock market prices change constantly, and shareholders pay close attention to these numbers.
stock market

Why Stocks?

So why would a company want to give a stranger part ownership of the business? Many reasons, actually. When a person buys stock in a company, this gives the company money to make improvements in the business. The company might be able to hire more workers, or it might be able to afford to research the latest and greatest technology so it can create new products.

And why would a person want to buy stocks? Well, it's pretty cool to have some ownership in a company. But the main reason is to make a profit, or financial gain. Let's say you buy stock in a video game company for $100. You hang on to your stock and watch the market carefully. You decide to sell your stock to another person, but now its value is $150. You've just made a profit, meaning you earned an extra $50 in addition to what you initially spent.

New York Stock Exchange

You can buy and sell stocks from your home thanks to online sources, but there are actual places in the world where people go to make trades, too. One of the most famous is the New York Stock Exchange. Located on Wall Street in Manhattan, this is the largest trading floor in the world.

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