Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

How the Stock Market Works

shashankr.me

Post reply on HN
Print view View original

61–70 of 73 posts

Re: How the Stock Market Works

#61

Post by evrydayhustling »

kelnos wrote: post #32

I was expecting something a lot more detailed. I got to the end and was wondering if this was the first part of a series, since it's nowhere near "everything" anyone would want to know about the stock market. It's barely an introduction. Then there are the inaccuracies. Zero-sum game? No. Derivatives are "a bet on the rate of change" in value? No. Brokers "help you execute a trade at the best possible price"? Well...…

Bond market is off too - bond writers don't set the rate, they just describe the payment schedule and auction it off. Market determines a price, which implicitly sets the rate.

It seems like an earnest effort by the author. I'd encourage them to find a pro to run this piece by as a further learning experience. When you stop getting edits, you are ready to teach a simplified version to others!

Re: How the Stock Market Works

#62

Post by Traster »

sgjohnson wrote: post #19

>It’s a zero-sum game, because there are always winners and losers in the stock market. Not really. Yes, there are winners and losers, but my win doesn’t equate your loss.

And it's also worth remembering that the stock market has increased in value (inflation adjusted) for decades. So whilst yes, it's true there are winners and losers, most of the time the winners outnumber the losers.

Re: How the Stock Market Works

#63

Post by imtringued »

Iv wrote: post #15
AznHisoka wrote: post #7

“It’s a zero-sum game, because there are always winners and losers in the stock market.” Is this true, outside of options? Most people are long and the stock market has always been on an uptrend.

The economy is not a zero-sum game and that's something I wish more people understood. Real GDP per capita grows. The average US citizen has access to more intrinsic values that aristocrats had just a few centuries ago. However, he may be talking about pure trading, a.k.a speculation, which is very close to a zero-sum game. If you are not in for the dividends, yes, that's close to a casino where the banks who charge…

Trading is necessary for liquidity. The real problem is that uneducated people think trading and investing in the stock market are the same thing.

Re: How the Stock Market Works

#64

Post by tomatocracy »

jacobkranz wrote: post #49
im3w1l wrote: post #47

Earlier quoted context omitted.

Mortgages have the advantage that you can't get margin called at an inopportune moment.

I heard through a realtor / friend that during '08 there were some home equity loans that were called back though. I don't know the exact details of those who had their HEL's called but my friend stressed that mortgages would never be called back (unless capitalism collapses) but HEL's could be even if you're making on-time payments depending on terms.

It's also not uncommon to see maintenance (ie tested every x month, not just on initial borrowing) loan to value covenants in commercial Real Estate lending, including at quite small scale (think small independent hotels and the like).

Re: How the Stock Market Works

#65

Post by marsRoverDev »

This falls far short of "Everything You Ever Wanted To Know About The Stock Market But Were Too Afraid To Ask".

Does anyone have a source that actually begins to explain thi stuff? I want something that goes into long/short, that begins to take a stab (in simple terms) at how to analyse a company's finances to identify red flags, or reasons why investing might be a good idea.

Re: How the Stock Market Works

#67

Post by thedufer »

gchokov wrote: post #34
gjvc wrote: post #9

Earlier quoted context omitted.

> exchanges that ensure liquidity "market participants" which provide liquidity on an exchange.

The exchange itself has a goal to ensure liquidity. Do you really think all your orders are instant because there's somebody on the other side to buy it? I mean, yeah, right - for the very common stocks this is the case, but what about those low liquidity stocks that are still being executed instantly?

The exchange can't trade on their own platform, it would be a massive conflict of interest. The liquidity is typically provided by market makers, who are given incentives to do so. They also get to capture the spread, which is itself fairly valuable. You don't need a conspiracy theory to explain it.

Re: How the Stock Market Works

#70

Post by aeternus »

burroisolator wrote: post #57
aeternus wrote: post #33

Earlier quoted context omitted.

This is not really true. The market overall works as a surprisingly efficient resource allocation engine. Onions aren't a great example as they are a commodity rather than a stock. Regardless, if someone does bid up the price of onions, it will typically trigger increased production of onions as farmers can make more profit by growing onions vs. another vegetable. This increased supply will pull the price back down.

Perhaps my argument can be simplified as follows. If everyone had the same models, they would pick the investment with the highest ROI adjusted for risk (ignoring externalities). That same investment is now not available for someone else: they now have to take the second best.

Thanks for the explanation, your argument makes sense.

I'd just look at it in a slightly different, perhaps more optimistic way. The fact that this investment has the highest ROI means that society as a whole would benefit from injecting additional capital into that investment.

In that sense, you're right that other investors have a less desirable price. However in theory at least, everyone is better off since that investment now has more capital, and is able to produce more output, positively contributing to the overall economy and increasing the size of the overall pie.

Post reply on HN