There’s a lot going on in the stock market this week and both and Reddit in general are inundated with questions about it. This is an opportunity to ask for explanations for concepts related to the stock market. All other questions related to the stock market will be removed and users directed here.
How does buying and selling stocks work?
What is short selling?
What is a short squeeze?
What is stock manipulation?
[What is a hedge fund?](https://www.reddit.com/r/explainlikeimfive/comments/l6ptb7/eli5_what_is_a_hedgefund/)
What other questions about the stock market do you have?
In this thread, top-level comments (direct replies to this topic) are allowed to be questions related to these topics as well as explanations. Remember to follow all other rules, and discussions unrelated to these topics will be removed.
**Please refrain as much as possible from speculating on recent and current events.** By all means, talk about what has happened, but this is not the place to talk about what will happen next, speculate about whether stocks will rise or fall, whether someone broke any particular law, and what the legal ramifications will be. Explanations should be restricted to an objective look at the mechanics behind the stock market.
EDIT: It should go without saying (but we’ll say it anyway) that any trading you do in stocks is at your own risk. **is not the appropriate place to ask for or provide advice on stock buy, selling, or trading.**
In: Economics
How does buying and selling stocks work?
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I own an orange factory. I want to raise money for building a new navel orange machine, so I issue orange stock. I make a special orange that you can buy for $1. I issue 1 million oranges, and raise $1 million. You now own an orange for every $1 you gave me.
That’s all you get. If you’re lucky, I might give you a fraction of how much I make with the new orange machine every year. But you buy the orange share because other people will want it later, when my company is big and successful, and you can try selling the orange share for more than the original dollar.
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What is short selling?
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You have 100 of my oranges. I come up to you Monday and say, “If you loan me those 100 oranges, I will give you $2 and your oranges back Friday. You agree, and I go off and sell your oranges for $1 each. I have $100 and owe you $2 and your oranges back. I hope your oranges will be cheaper Friday, and if they are only worth 50 cents, I buy 100 oranges and give you them and $2, and I am $48 richer.
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What is a short squeeze?
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Someone saw me make the deal on the oranges, and then immediately sell them. They know I have to have 100 oranges on Friday. So the go buy up all the oranges, and on Friday, when I try to buy oranges, they are standing there with a sign that says “oranges for sale $20.” Anyone who wants to sell oranges is selling them there. I have to buy from them for $20 an orange. Now I have lost $1900 dollars buying the oranges back, and still owe the $2.
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What is stock manipulation?
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When I buy the 100 oranges, I go around and talk about how bad oranges are. I tell my friends not to let anyone buy oranges so demand drops. I go on CNBC and talk about how I bit into a nasty orange and threw up. Now oranges are 25 cents. How wonderful… I can buy my 100 oranges for $25, and now my profits are $73!
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