Generally speaking I hate the phrases such as ‘true so and so’ or ‘perfect so and so’, but its important that people who support free market understand what and how a market player works. Imagine if you are a football fan, you support your football team, you probably know all the rules of the game, but since you haven’t played the game yourself you just don’t feel it exactly how a football player feels.
You know that if the ball leaves the emarkated boundary then the opposite team gets to throw in the ball from that point on the boundary, but what you don’t know is what does the player really have to go through or consider when he gets that chance in order to win.

Similarly its very important for people who support freedom, liberty and capitalism to understand the operations of a market player. we all are drilled about how to use state as a solution for everything, if there is a possibility that the car manufacturers might make an unsafe car, our statist upbringing immediately kicks in and tells us the statist solution, “Lets have the govt make car safety regulations, after all the govt’s only valid job is to protect life, liberty and property, so that seems to be a proper justified role”, but the truth is this statist solution always causes more problem and deaths than its equivalent free market solution. You will be only and immediately be able to see how undynamic and faulty this solution is when you manage to think like a market operator, rather than a government beaurecrat.

This is why to understand the market and support it properly its important to train yourself in the most important of market’s operations, buying and selling of means of production(aka trading stocks). I know a lot of us are very excited about stock market trading, and those with good money might already be in the market, but if you jump in directly with real money in the market then you might get turned off very quickly by successive losses. That is my I strongly suggest trading with virtual money on real stocks as long as possible. Those who are impatient to start as soon as possible please scroll down to the bottom of the document to click on the best virtual trading website, and join it, but I would highly suggest to read the rest of the article because I attempt explain stock market and its function in as less boring possible.

Stock Market

A stock market in a capitalist society is the brain of the market. Remember that in the most basic level a capitalist society like USA differs from a socialist society like Cuba because the former has a stock market. The whole concept of a socialist society is based on non-private ownership of means of production, and stock market is a place to trade the ownership of means of production.
Lets say if the city of London has a requirement of oranges, city of Tel Aviv has a huge infrastructure to produce those oranges then that means that there is an opportunity to supply oranges to the city of London from Tel Aviv. Any company having the infrastructure, or which starts to establish an infrastructure to buy oranges from Tel Aviv and supply it to London, is doing the right thing, and stock market investors would start appreciating the means of production of this company. The stock price of this company would go up, which means a better credit line for the company and more money flow. This will enable the company to invest in a bigger infrastructure and transport more oranges from Tel Aviv to London.
Similarly, if a company is in the business of producing cup cakes, and a report comes which concludes that having cup cakes is really really harmful to your health, this clearly means that people will now start buying less cupcakes, so the stock owners of that cupcake company will sell their shares, resulting in undervaluing of the stock price of that company(it won’t go down to zero unless company is really going bankrupt, there would still be some sales of cupcakes therefore stock price will just go down and settle to something less).
By correctly identifying the stock prices, the stock market investors earn huge profits in this process. If you come from one of the socialists or quasi-socialist countries like India, and Soviet Russia, you will realize that a stock market works a lot like the central planning commission, it moves resources and capital goods from one venture to the other. Where it needs less to where it needs more. In the above example if at the same time Coffee demand in USA is going down(and it receives huge amount of Coffee from Brazil), then a stock market will start depreciating the value of any Coffee company doing business from Brazil to US, maybe making it get rid of its now excess capital goods(such as cargo airplanes and crew), and the added capital flow to the orange company will enable it to buy more cargo airplanes and crew. In a central planning scenario this thing should have been done exactly be a central planner, where he reallocates the cargo airplanes, from import-export of coffee to oranges, from Brazil-US route to Israel-UK route.

Stock Market is not a casino or a horse racing game

It is shockingly disappointing that a large number of people believe that stock markets are nothing more than places where you gamble with your money. I recently found some individual on an economics chat room who had an opinion about everything, sounded quite smart, but when I asked him what does he think about Stock Markets, or if he thought Stock Markets served any utility or not. His answer was, “I think stock markets harm small businesses”. This is by far the dumbest thing I have heard someone say. Stock Markets are the brains of a market, without them, market cannot function. A casino is a place where everybody has equal odds, and you play for the fun of luck. A casino’s only utility is entertainment, but a stock market is far from being entertaining. But it would be very unfair to not realize why people think so low of stock markets.
The reason why people think Stock Markets are nothing more than Casinos because of the massive uncertainty in the markets. A lot of people invest a lot of money in the markets, and most of their odds are not better than winning on a roulette table. Also there are times when stock market rises at once and falls at once, you might wonder if Stock Markets are all about putting capital at the right method or venture of business, then how come in 2008, 2001, 1987, 1929, the stock market crashed at once. Or why is it that people treat it as gambling tables, after all most people just look at the technical trends, and follow them, most stock market traders don’t worry about the exact business model of a company.
The answer of all these questions comes down to single most important problem bugging all the ‘capitalist’ societies in the world, and that is the Fiat Currency. Due to high inflation, the prices of consumer goods rises really fast, and all the people who want to save their capital, find their capital depleting at a really fast rate. So people are forced to somehow try to keep up with rising consumer prices. Stock market provides some very high returns compared to say fixed deposits or other investment opportunities.
Similarly the massive amounts of regulations on the stock market creates this fog which makes it really hard for real prices to appear. For example short selling(selling without owning the stocks) has a huge set of regulations. Whenever market crashes the government steps in and makes short selling of the major stocks illegal. All this cripples the real functionality of a stock market, and most people end up losing a lot of money.

The Solution

What should you do if you are someone who is interested in stock markets, and who has found the life of a stock market very fascinating? Or you could simply be a capitalism enthusiast who wants to understand the brain of the free markets. Or you think its an evil thing that companies are liable only to their stock holders(there is a big surprise waiting for those who think so).
The solution is simple, start trading in stock markets, but without using real money. There are some very good virtual stock market softwares available, but my personal favorite is Wall Street Survivor. Its a web based stock market game, and it allows you to invest in real stocks and real prices but by using virtual money and virtual portfolio. I really like it because it allows you to create a variety of portfolios in the same account(say you want to try to parallel strategies at once without complicating things too much, for example I have two portfolios on guessing which would be the next bubble, and I invest in two industries, keeping the portfolios separate).

Before I go on let me warn you this, virtual stock trading will not enable you to make money in real stock market, the only way you can learn to make real money in real markets is by investing in real, but there is something very important virtual stock trading will help you learn is to get rid of the initial quirks new investors face. Let me put it this way, if you practice on a virtual stock trading account, it will help you not make huge losses new investors make(purely because they are unaccustomed to the ups and downs of the market).
Most people lose money in stock markets when they start into this thing because they don’t have this investor’s mentality. They just go with their feelings, and the moment they make a little bit more money they go crazy with the power, and end up losing not only the profit they made but their initial investment capital too. Some sitcoms(Seinfeld, King of the Queens) captured this roller coaster experience new investors face beautifully in their series. Overall it goes on something like this, you invest, you make some good profit, then you hit a losing streak and you end up at 50% loss of what you started with. In real life that’s when most people bid stock markets good bye, but if you stick through this experience you have just managed to achieve some stability and a great experience which will help you in making profits at a later stage.
I practiced with all sorts of stock market simulators for over 2 years before I dealt with real money, and I have tried all sorts of markets, stock markets, options markets, futures trading, forex markets, and overall my conclusion is(and its only applicable for me), that I should only put a very small amount of money capital into the markets. I should never do technical trading(technical trading is when you trade only on the basis of prices, and nothing else, business model doesn’t matter), stick with options(you can do options trading in Wall Street Survivor). It has helped me to learn and understand futures and most importanly Options(which are a bit complicated). Thankfully I am now as comfortable with options as I am with stocks themselves.
So use the above link to sign up on Wall Stree Survivor(https://wallstreetsurvivor.com/), and start playing. If you want to add me as buddies on WSS, send me a mail at renegade.division+wss@reasonforliberty.com and I will add you.