How Does the Stock Market Work

What is the Stock Market and How Does it Work?

In forums people often ask the question - How Does the Stock Market Work ? The simple answer is that the stock market is a market like any other and it works on the principles of supply and demand. The more complicated answer is the stock market works the way the maket manipulators want it to work, and to believe otherwise is to be very naive.

In the following video 'how does the stock market work' Jim Cramer explains how he and people like him use millions of dollars to make the stock market work the way they want it to work.

In the first explanation you may consider the stock market to be like an ordinary market where people buy and sell stuff to each other. If there aren't many apples available in a fruit market and lots of people want apples, then the price of apples will go up and vice versa.

In the stock market a company divides itself up into small 'shares' and sells these shares to investors who thus become entitled to a part of the profits (if there are any). These investors can also sell these shares to other investors. The aim of course is to sell your shares for more than you paid for them. Sooner or later however somebody will buy the shares and then find that nobody else wants to buy them off him. This is known as the 'bigger fool theory' i.e. you have sold your shares to a bigger fool than yourself.

This is what happens when the stock market reaches a high point and can go no higher, because nobody is willing to buy the shares anymore. This happened back in 2007 and led to the stock market crash from 14,000 down to around 8500.

Well that's the theory at least but in fact simple supply and demand is not the whole story. There is a lot of market manipulation that goes on by people with very deep pockets who can drive prices up and down as suits them. Imagine if someone were to start a rumour that apples were bad for you, then people might stop buying apples and the price would dive as traders tried desperately to get rid of them. Well this sort of thing goes on in the stock market too, every day of the week.

In his video - How Does the Stock Market Work - Jim Cramer explains some of the tricks that market manipulators get up to. He is very well placed to know as he was one of them, as he readily admits, and probably still is. There are some people who maintain that the whole of this recent stock market crash was manipulated by Goldman Sachs, who have managed to eliminate or destroy three of their main competitors over the last year. On the stock market things are never what they seem. There are people who maintain however that you can see which way the market is heading from the charts and you can therefore see how the stock market works by studying stock market charts - for further info. see stock market charts for beginners.

How Does the Stock Market Work by Jim Cramer


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