It is easier to learn with example.
Imagine you wanted to start a retail store with members of your family. You decide you need $1000 to get the business off the ground so you incorporate a new company. You divide the company into 1000 pieces, or "shares" of stock. You price each new share of stock at $1. If you can sell all of the shares to your family members, you should have the $1000 you need (1,000 shares x $1 per share = $1000 cash.
So, stocks in your family retail store and Wall Street Stocks are no different, take a look:
When you buy share of stock, you are purchasing a tiny piece of a company.
The current stock price of McDong's is S$2.00. The stock market is nothing more than an auction. Individual investors, just like you, are making decisions with their own money in a real-time auction. If someone wants to sell their shares of McDong's and there are no buyers at $2.00, the price would have to continually fall until someone else stepped in and placed a buy order with their broker, let's say S$1.90. If investors thought McDong's was going to grow its profits faster than other companies, they would be willing to bid up the price of the stock at S$2.10 (which is affected by supply and demand because there are only a fixed amount of shares in existence, in this case 1,000,000 shares). Likewise, if a large investor were to dump his or her shares on the market, the supply could temporarily overwhelm and drive the stock price lower.
It's simply supply and demand thing. McDong only have 1,000,000 shares to go around. If there are more demands than supply, the price will go up towards Mount Everest. If there are too much supply, and nobody is buying it, the price will sank down the sea. Get it?
