How the Stock Market Actually Works (For Beginners)

Every single trading day, hundreds of billions of dollars worth of stocks are traded on American markets alone. And yet, almost none of that money actually reaches the companies those stocks represent. So, where does it go? Most people assume the stock market works like a donation box. You buy Apple's stock, Apple gets your $200, and they use it to build the next iPhone. But that's almost completely wrong. When you buy a stock, you're not paying the company, you're paying a stranger. Someone you'll never meet, who decided today was a good day to sell. Apple doesn't know you exist, they didn't get a single cent. And yet somehow, that transaction still moved a number on a screen, made headlines, and shifted the retirement savings of millions of people, all in a fraction of a second. So if the company isn't involved, what actually just happened? That's what we're going to unpack today. Why the stock market was created, how prices are actually determined, who's really behind the trades, and why the whole thing feels so fast. Welcome to Marduk Finance, where we explain investing concepts in a simple way. But first of all a quick disclaimer, this is not financial advice. Alright so to understand what the stock market is, you first need to understand the problem it was built to solve. Go back a few hundred years, you're a merchant in Amsterdam, and you've heard there's a fortune to be made trading spices from Asia. The only problem? Getting there requires a ship, a crew, supplies, and months at sea, with pirates, storms, and disease waiting at every turn. The cost is enormous, and if the ship sinks, you lose everything. No single person could afford that risk alone. So someone had a genuinely brilliant idea, what if we split the risk? Instead of one person funding the voyage, dozens of people each chip in a smaller amount. If the ship comes back loaded with spices, everyone shares in the profit proportional to what they put in. If it sinks, well, no one person is ruined. That's the Dutch East India Company, founded in 1602, and it's widely considered the first company to ever issue shares to the public. The main idea that you can divide ownership of a risky venture among many people turned out to be one of the most powerful financial ideas in human history. Everything you see on a trading app today, it's just that same idea, scaled up and made instant. So, a stock is a piece of ownership in a company. But let's be precise about what ownership actually means. You don't own a desk at Apple headquarters. You can't walk into an Amazon warehouse and start handing out boxes. What you own is something more abstract, and in some ways, more powerful. You own a claim on the future value of the business. Think of it like owning a slice of a pizza that hasn't been baked yet. You don't know exactly how big or good it'll be, but if the whole pizza grows, if the company earns more money, expands into new markets, becomes more valuable, your slice grows with it. And if the pizza burns, your slice burns too. That's the deal. Ownership means sharing in both the upside and the risk. Now, why would a company want to give away pieces of itself? Well, the main reason is capital. Let's say you run a small coffee chain with 5 locations, and you want to open 50 more. That requires a lot money for real estate, equipment, staff, and marketing. You could take out a bank loan, but that means paying interest regardless of whether the expansion works. You could find a single wealthy backer, but then you owe them favors and influence. Or finally, you could actually sell shares. By going public, you raise money from thousands of investors at once. No monthly interest payments. No single person in your ear. In exchange, those investors get ownership, and if your expansion succeeds, they benefit too. That fundraising event, the first time a company sells shares to the public, is called an IPO, an initial public offering. And this is the one moment where your money actually does go to the company. After a company is already public, it can still raise capital by issuing new shares. When this happens, the company is once again selling ownership directly to the market, and the money from those newly created shares goes to the company. These events don't happen every day, and they're usually done for a specific reason, like funding growth or acquiring other businesses. This is called the primary market, when money flows from investors to the company. The secondary market is everything that happens after. Once those shares are out in the world, the company steps aside. From that point on, investors trade shares with each other, and the company is just a bystander. The price isn't a measure of how much money the company has received. It's a measure of what investors believe the company is worth right now. So buyers and sellers need to find each other, and that's where stock exchanges come in. Think of a stock exchange less like a physical building, though the New York Stock Exchange does have an iconic one, and more like an incredibly regulated and fast matchmaking system. When you hit buy on your trading app, you're not personally hunting for a seller. Your broker sends your order to the exchange, which uses sophisticated software to find someone willing to sell at your price. If a match exists, the trade happens in milliseconds. The exchange logs it, settles the transaction, and updates the price. The two biggest exchanges you'll hear about, the New York Stock Exchange and Nasdaq. Most major companies are listed on one of them. The stock market isn't one homogeneous crowd. It's several very different groups with completely different goals. Retail investors. That's probably you. Regular people investing through apps or brokers, typically with a long-term horizon, buying shares of companies they believe in, and holding them for years. They're not the loudest voice in the market, but collectively, they matter. If you're interested in getting started with investing, you can check out MooMoo and Webull, two popular app-based brokerages for retail investors. Links in the description. That said, let's continue with the video. Traders. These are people trying to profit from short-term price swings. They're less interested in whether a company is fundamentally good, and more interested in whether the price is about to move in a predictable direction. High risk and high stress, and most of them statistically lose money. Institutional investors. This is where the real weight is. Hedge funds, pension funds, or mutual funds. These entities manage billions, and sometimes trillions of dollars. When one of them decides to buy or sell a large position in a company, the sheer size of that order can visibly move the price. They have research teams, algorithms, and information advantages most retail investors can't match. And finally, market makers. You don't hear about these much, but they're crucial. Market makers are firms that sit on both sides of the trade simultaneously. They're always willing to buy, and always willing to sell, profiting on the tiny spread between the two prices. Without them, markets would be far less liquid, and much harder to trade in. Alright, we've talked about ownership, exchanges, and different players in the market, but how are stock prices actually calculated? One of the most important parts to understand. And for that, I've already made a couple of videos where I go much deeper into this topic. I highly recommend checking those out. But for now, let's break down the core idea in a simple way. Supply and demand. Every stock has what's called a bid and an ask. The bid is the highest price a buyer is currently willing to pay. The ask is the lowest price a seller is currently willing to accept. When those two numbers meet, a trade happens, and that price becomes the official latest price of the stock. If there are more buyers than sellers, buyers start competing with each other, offering higher and higher prices to get someone to sell, and the price goes up. If there are more sellers than buyers, sellers start undercutting each other to attract buyers, and the price goes down. And also, prices don't just react to what companies do. They react to what people expect companies to do. On the one hand, a company could be perfectly profitable, but if investors believe next quarter will disappoint, the stock can drop before a single disappointing number is reported. On the other hand, a startup with no revenue can have a billion-dollar valuation if enough people believe in its future. This teach us the market is constantly pricing in expectations, not just reality. That's why you'll sometimes see a company post-record profits, and the stock drops. Because the profits were good, but not as good as people expected. And that's it for today. If this video helped you understand the stock market a little better, make sure to like and subscribe. If you want to keep learning, there are plenty of other videos on the channel that go deeper into these ideas, and I think you'll really enjoy them. Thank you so much for watching, and I'll see you very soon. Bye.