When you invest in the stock market, you can make money in two ways. Companies may choose to pay dividends to their stockholders. A dividend is part of the company’s net income that they pay to stockholders. For example, they could decide to pay 25 cents for every share you own in a quarter. This would mean that if you had 100 shares, they would pay you $25. They usually pay dividends quarterly, and are not required to pay every quarter or at all.
The other way to make money through investing is through capital gains. If you bought 100 shares for $4 a share at $400 and the price increases to $5 per share, when you sell it at $500, you’ll have a total capital gain of $100.
The price change is a matter of supply and demand. If a corporation is selling stock for $5 per share with 100,000 shares available and all 100,000 shares are bought, no more no less, the price will stay the same because there is the exact amount of demand at a $5 cost. If there is enough demand for 200,000 shares and only 100,000 are available, the price will need to go up to accommodate the increase in demand.
There are more people willing to buy than there are willing to sell. They need to increase the price to make up for it. If there are still 100,000 shares available but there is only demand for 50,000 shares, they will need to lower the price to bring up the demand.
Let’s use a department store selling jeans as a real world example for supply and demand. If they are selling 30 pairs of jeans at $50 each and only sell 10 pairs in the first week, they will need to bring down the price so that more people begin to buy the jeans. With a lower price, more people can afford them and will be willing to buy them.
If they actually only put out 15 of the 30 pairs and they all sold within a few dollars, in order to not run out, they could increase the price so that demand goes down. More importantly, they will be making more money. The same is with stocks, as demand goes up so does price and you will make more money.
