How do you explain to a child how the stock market works?

It could be like exchanging gifts for Christmas in school. You expect to get a better gift than the one you are sending out.Sometimes it will be and sometimes it wont.When it isn’t great you wish you had not got the other person such an expensive gift.

Hope this analogy makes sense.

Companies allow people to own a part of the company and that is called stock. People pay for each piece of stock what they think is a fair price. The price goes up and down depending on how well the company is doing. When you sell your stock it might be for more money if the company is doing well and the new buyer will pay more, or less if it is doing worse and the new buyers won’t pay as much. The stockmarket is the place where the trading is done, where they monitor and calculate how much people are buying and selling for.

I would say the degree of explanation would depend on the age of the child. The way I’d explain something to my 4 year old is different than the way I would explain something to a 10 year old.

I would like it explained to me..I aint no child

Some people can buy part of a company, and in exchange for this they receive some of the money it makes. For instance, if I buy half of a bakery, I get half of the money it makes each day.

The stock market is people buying and selling bits of shops and companies to make money. For instance, if I predict that tomorrow my bakery won’t sell much bread, but the flower shop will—I will sell my bakery share and buy a flower shop share and make lots of money, because lots of flowers have been sold.

If I buy a share in a new invention that I think might end up being really popular—like the pogo stick—and it ends up making millions of pounds I will get a bit of that, and I can become very rich too! I can also sell it to someone else who wants millions of pounds before pogo sticks become unpopular, and my share becomes less valuable because no pogos are selling and my share isn’t making me money.

Start out by explaining the law of supply and demand. it’s an easier concept, and it is directly reflected in the stock market.

And you can easily teach the kid using Oreos or potato chips.

that is based on what kind of questions he is asking. Just tell him this market is like an unknown person with risks to trust him.