How does the stock market make money ?

[C......N......C]

Long term growth and investing. or It is a pyramid scheme.

[ThomWV]

1. Commissions off individual sales

But your question really doesn't make sense. You see for the first thing there is no such thing as "the stock market". There are lots of stock markets and each market has different segments.

As an investor you make money one say, as a stock trader you make it a much different way, and if you are the stock exchange itself you make it a different way yet.

The investor buys stocks at one price and sells them at another price at some later date (or earlier date in one odd way of trading). The result can be breaking even, a profit, or a loss depending on the prices on the day of purchase and the date of sale.

Stock traders, the guys you see yelling on the floor of the exchanges, in a gross sense are paid by comissions on the stocks they buy and sell for others,

The exchanges themselves sell seats, charge dues, and in some cases charge comissions on sales I beleive.

[C......N......C]

6. Commissions. Who or what determines how much money

there is that gets to be paid out for bonuses and commissions. There seems to be no limit on what they are allowed to take for commissions.

[ThomWV]

10. Comission rates are published

The rates are published and publically available.

[C......N......C]

8. The purchase of a stock seems to fund a large organization.

If you give a stock broker $100, I am guessing that you don't get $100 worth of stock. Does all the supporting money come from commission on sales.

[A HERETIC I AM]

14. You need to define your terms a bit more.

The purchase of a stock seems to fund a large organization.

Organizations large AND small issue stock and not all of it is publicly traded. Many thousands of companies issue stock that can not be purchased on an exchange, it is "closely held" as it is known and offered only to employees. UPS is an example of a company that for years was closely held and company stock was only purchased by the employees through voluntary payroll deductions. UPS went "public" in November of 1999, through an IPO of their common stock.

If you give a stock broker $100, I am guessing that you don't get $100 worth of stock.

In effect, you're correct. If you buy 100 shares of ABC company at $1.00/share, you are going to pay a commission for the purchase. Lets say the commission is $10.00. Your "Cost basis" for the shares is $1.10 per share. The stock has to climb above $1.10 for you to break even. If the commission is the same on the sale side, you'll need a share price of at least $1.20 to break even. BTW, commissions typically average MUCH less than 10% as in this example.

Does all the supporting money come from commission on sales.

What do you mean by "supporting money"?

[C......N......C]

17. To pay all the brokers and commissioners and keep the lights on and rent paid.

Supporting money.

[A HERETIC I AM]

21. Yes and no.

Broker/Dealers keep the lights on by commissions along with other fees, not all of which are commissions on the sale or purchase of securities. They might be underwriters on Bond issues, for instance and receive fees as part of that service.

The exchange itself (The NYSE, the NYMEX, the CBOE, etc) make money as mentioned by ThomWV, through dues and other fees charged to the member or participating brokers.

Brokers facilitate a liquid market. If you owned those 100 shares of ABC company and wanted to sell them, you would have to physically find a buyer, agree on a price and negotiate the terms of delivery, etc. Brokers and Broker Dealers do all this for you seamlessly and quickly. A process that might literally take you hours or days to complete if you had to do it yourself can be done in literally seconds on an exchange using brokers. They match buyers with sellers and vice versa. It's a valuable service and commissions are a normal and natural part of the transaction.

BTW, commissions are what keeps the lights on at every Real Estate Brokerage too and markups of one form or another are what keeps every business operating.

[Statistical]

23. Comissions is one form of revenue

Brokers are not the markets though.

You pay a commission to a broker the broker executes the trade on the market.
The markets make money by charging a commission to the broker.
Markets also charge for access and for data feeds (each trade price).
Generally individuals will not have direct access to markets. The cost for direct access is incredibly high (NYSE = just one market) charges $11.5 million per year and only allows a set # of people.

So brokers act as a middle man. You place an order (either in person, by phone or more commonly by internet). The broker routes it to the market. Often times stocks will trade of multiple markets so a good broker will determine which market has the best price or if you are asking a specific price (limit) which market is most likely to fulfill that request the quickest.

Commissions are pretty complex but brokers tend to make it simple by charging a flat fee that covers everything.

Example: TD Ameritrade charges $9.99 to execute a trade on any market regardless of if you are adding or taking liquidity and regardless of the number of shares. TD Ameritrade's cost will vary dramatically depending on the size, type, and location of trade.

Of course brokers and markets are only 2 small pieces in the "market".

KEY THING TO REMEMBER:
When you are buying or selling stocks you are buying and selling it to another investor not the "market" or the originating company. So when someone says the market is losing money that is a falsehood. For every loser there is a winner.

[notesdev]

2. Suckers put their money in

they take your money out

simple!

[ThomWV]

4. This is a nonsensical answer that shows no knowledge of the market what so ever

Actually its no answer at all.

[Deja Q]

5. No, but a lot of people feel that way these days.

[ThomWV]

9. How unknowledgable people feel certainly does not answer the question - does it.

Presuming the question was honestly asked why would someone give a nonsensical answer about the state of their emotions that does nothing at all to shed light on the inquiry? It is a waste of time for the person answering and it improves nothing for the person asking other than to know that there is at least one other person in the world that is as clueless as they are.

[C......N......C]

12. The question was asked honestly. I have always thought of the stock market

as a pyramid scheme that has to survive on inflation and continued sales. I know that salesmen will sell without regard to the benefit of the purchaser. I watch a lot of old movies, and what is going on now has always been going on. For background, until the last 10 years, I grew up in a place where no one had ever bought stock. Not an economic decision, just depressed area.

[ThomWV]

13. Well, then its time for you to learn better

You did not always think the stock market was a pyramid scheme. You were not born thinking that. Someone told you that and you believe it. That's a shame because the person who told you that was a fool. Unfortunately there are an awful lot of people who come here who have been just as badly fooled, and that is why you see some of the answers you see to your question.

If you really want to know how it works I'd be happy to explain it to you in a little more detail, at least enough that you understand what the market is, why it is, and how it plays a vital part in the functioning of our economy and country.

[C......N......C]

16. Thank you. I grew up in the foothills of Appalachia. People thought that

you has to speak latin to be a lawyer. My whole family lived on the dream of FDR. I grew up with the understanding that the stock market was crooks. I have to go to work now, thanks for your time. Always have been in poverty. Then and now.

[ThomWV]

22. When you get home from work check your messages

I'll give you a brief explaination of what it (the stock market system) is and how it works, and more importantly why we need it.

[notesdev]

7. A bit simplified, maybe

but you gotta admit it is dead-on accurate

[ThomWV]

11. I admit no such thing. It is not 'dead-on accurate', in fact it is dead-on inaccurate

[notesdev]

15. Yeah? How's your 201k doing these days? -nt

[ThomWV]

19. Do you mean 401K?

Haven't got one - but I do own a number of individual stocks as well as shares in mutual funds and in fact we bought yesterday afternoon as part of a regular monthly investiment into an index fund. Yes, you heard that right, even in retirement I continue to save by way of regular monthly investments.

[Deja Q]

3. Net profits.

It's about "shareholder value".

Not "customer value".

Not "worker value".

Not "quality value".

Cheaper is better.

In their eyes.

In reality, it's worse. Damn worse.


Whatever's cheapest, even if you have to get a subcontractor who subcontracts out to a subcontractor... who also subcontracts. Ad infinitum; the net result is NO ACCOUNTABILITY because it takes forfuckingever to backtrack the mile-long list of invoices, which might be lost due to human error.

[Cessna Invesco Palin]

26. Uh, no.

What you are describing is an anathema to a good investor. When I invest, I look for companies building high quality products, accountability, and good cash flow. Not everyone is a speculator.

[Deja Q]

29. High quality products exist? Accountability?!

Best joke of the year...

[Cessna Invesco Palin]

31. Yes they do. n/t

[Djinn]

18. socially acceptable problem gambling

[wartrace]

20. Stocks are valued based on earnings and investor sentiment.

Stocks are valued by their price to earnings ratio. There is also investor sentiment involved about the prospect of future earnings. A good example of the investor expectations is the Gannett company which owns USA today & many local daily newspapers across the country. Despite a healthy dividend (until recently), the stock was only valued at two times earnings. Most other firms vary between 10 or 20 times earnings. Why was Gannett only valued at two times its earnings? The future of American Newspapers is very bleak.

The stock market is not a pyramid scheme, it is an open auction for shares of corporations. Yes, the dow Jones index is down by 40 to 50% and that is based on the earnings of those thirty companies & the public's perception of future earnings. Right now is a good time to be investing if you have any belief that the economy will come back.

[olegramps]

24. Selling Short.

It is my opinion that Short Selling can be a dangerous why to manipulate the market. In 2007 the law was changed to allow more short selling. Until that time you could only borrow stocks to sell short if the stock was on the up tick. The massive amount of selling short has resulted in market manipulation and chaos. I would outlaw all short and long selling period. I see it as nothing more than a threat whose only benefit is for major dealers why are watching the market 24/7. It has the same volatility as the futures market in which only the most astute had better venture.

Let me make an example. You buy 100 share of XYZ at $100 per share. In this market in which it is turning down a buyer borrows 10,000 shares and sells them short thereby depressing the value of the stock even further. You must understand that he never actually bought the shares, he just borrowed them with the agreement that he would replace them. You only stand to lose on your original purchase and the seller stands to make a handsome profit by driving down the stock value because he buys the stock at a lower price and returns the stock to the broker that he borrowed them from.

The Stock Market has been turned into something that it was never intended to be. Basically it was a means for a person with a promising product or service to obtain financing. The stock holders that believed in the company bought stock and their interest was to be overseen by a board of directors. The board was the stockholders protection that was see that the management didn't rip off the investors. What has happened is the boards have become a country club of managers in firms that sit on each other's boards and proceed to rob the the stock holder blind with huge compensation packages for their buddies. In many cases the people who sit on these boards only own a few shares in the company. The entire system has been corrupted by deregulation and failure of oversight to the point of collapse. Yes, unfortunately the common people whose pensions and 401ks financed this rip off had no protection while the managers of these enterprises long ago dumped their stock options pocketing millions and leaving the us holding the bag.

[Cessna Invesco Palin]

25. Well, you attempt to value a company.

Then you play your valuation against the valuation others have given the company.

[olegramps]

28. That would be nice but that isn't the game they are playing

[azul]

27. The question is, how does Wall St make its money.

The stock market is just part of the financial services' necessary racket.

[TWiley]

30. How is money created in the first place?

That is a better question .....

[Mike 03]

32. You mean the investors or the investment managers, brokers, or the corporations who sell stock? Not

certain what you are asking.

There are so many individual moving parts trying to "grow" as a result of stock market activity, and the means by which they do this varies from entity to entity.

[rucky]

33. They sell the air.

that explains the bubbles and bursts