Buying and Selling Stocks

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Mathematics, Data Analysis and Probability, Social Studies

Grade 5- 8

Objective

Students learn about the stock market.

Directions

Ask students what they know about the stock market, leading them into a discussion of what the stock market is.
The term stock market refers to the buying and selling of shares, or stock, in all kinds of companies, both in the United States and around the world. The stock market allows everyone who wishes to participate a chance to own a part of any publicly held company--that is, any company that sells stock to investors. In this way, the stock market raises capital, or money, that a company can use in order to continue to produce its product or offer its services. In return for the use of investors' money, if the company does well, investors reap a profit; if the company does poorly, investors see a loss.
How does the stock market work? Imagine that there is a company called Hawaiian Plantation that makes all kinds of tropical snack foods you like to eat. You think it would be fun to have a part of that company--and you can. You can buy shares of Hawaiian Plantation stock. As long as the macadamia and pineapple crops are doing well and Hawaiian Plantation is able to generate a profit, the shares that you buy will increase in value. But if a hurricane hits and most of the pineapple crop is wiped out for a year, Hawaiian Plantation may have to raise its retail prices too high to attract buyers to its product on the supermarket shelf. Hawaiian Plantation loses money, and you do, too, as investors sell off their stock, and the price of remaining stock plummets.
Where do you go to buy stock? Stock is not a product like chocolate-covered macadamia nuts. Traditionally, stock is purchased from a broker who charges a commission, or fee, for his or her services. (It is possible to buy stocks online through the Internet without a broker, but a broker also gives recommendations and advice about stocks that a person may want.) The broker's job is to send a message to the floor broker, who literally walks the floor of the New York Stock Exchange (or other exchange) when there is a buyer for Hawaiian Plantation stock. The floor broker actually buys stock from a company that specializes in this type of stock.
The floor broker then reports to the broker that the stock was purchased. The broker reports the trade through computers. In this way, the rise and fall of stock prices gets reported throughout the business day. Generally, you would not get the actual stock certificate for your Hawaiian Plantation stock, but the broker keeps your purchase in his or her records. If you ever want to sell your Hawaiian Plantation stock, you let the broker know, and the process happens in reverse, with the broker charging another commission.
Remember that thousands and thousands of transactions like this take place, and as a result, millions and millions of dollars change hands on the stock market daily. The value of stock in various companies can determine the health of the nation's economy. Far more than Fort Knox, the stock market is at the center of American economic activity.
Ask students the following questions:
1.Why would a company decide not to sell stock?
2.What happens when a stock splits?
3.Would you rather invest in a company that makes a product, such as a food manufacturer, or one that sells a service, such as a hotel chain? Why?
4.If a company has an unprofitable year, should you as a stockholder automatically sell your stock? Why or why not? Can you think of reasons to hold onto a stock over time?
Distribute the activity sheets and have students practice buying and selling stocks.

Resources

  • Buying and Selling Stocks activity sheets
  • pencils

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