6.2 How does a stock market work?

Unlike money deposited in a savings account, investment in shares issued by companies listed on a stock exchange is very risky.

The risk is that the value of your investment may decrease if the value of the companies you invest in goes down.

For example, suppose you buy 10 shares of a company when the stock price is £10 per share. This means that at the time when you buy the shares, the value of your investment in the company is £100.

After you have bought the shares, the price of the company’s shares may go up or go down. If the price goes down, then the value of your investment will go down as well. The risk is that you may end up with less money than you started with.

Watch this video below which helps to explain how the stock market works.