Original subtitles

Hey guys in this module we're going to be covering what's a market.

Everybody knows what the market is right?

We go to markets every single day.

Our market is basically just a location where you go to buy and sell products.

It's a location where people go to do commerce.

Now there's a lot of different types of markets.

There's clothing markets there's electronic markets there's grocery markets, So markets are

characterized by the products that they specialize in.

Right.

So there are markets that are more general where you can buy and sell different things.

But some markets are very specific where the only deal in one type of product.

Now we're used to one type of market the market we're used to is a market where we go.

The prices are already set and can either accept them or refuse them.

Example When you go to a grocery store apples might be at two dollars a pound.

You can either accept that price or leave.

You can't say no I want to get it cheaper you can bargain.

So that's the regular type of markets that we're used to.

Now there's another type of market and that market is called an auction market. An auction market is

a market where buyers can compete on the bids that they're willing to pay for our product.

And sellers can compete on the offers that they're willing to sell that product for.

Imagine this imagine if you went to a grocery store and instead of having apples at a set price

in a basket you had 20 different people and every person in that group held an apple and was saying

I'm willing to sell it for $2.

And the other person might say I'm willing to sell my apple for $1 and I need somebody else for $1.85.

So every single seller would be competing on what price they are willing to offer you the apple and

then all the buyers instead of just accepting or not they come out and say well I want to buy an apple

for a $1.

And somebody else might say I want to buy an apple for a dollar and ten cents.

So all the buyers all are also simultaneously competing on the bid prices that they're willing to pay for

that apple.

So obviously that would never work in a grocery store or in flat markets that we go to.

But that's exactly how the stock market works.

It's an auction market.

There's no set prices.

Buyers are bidding for the best price that they're willing to pay for that stock for that product.

And sellers are offering how much they're willing to sell their product, their stock.

And it's all going on simultaneously and continuously throughout the trading day.

And that's how prices are set.

Now, that's what a stock stock market is.

So we're going to be focusing on that obviously trading this course.

Now there's two types of markets.

There's the primary market and there's the secondary market.

What is the primary market the primary market is the market that the stocks trade in for the first time

ever.

So the first time that a stock is issued goes out to the public.

That's the primary market. The secondary market

Is every other time it trades after that.

So it's basically second hand.

Every time the stock has been traded second hand somebody already owned it before you you're in the

secondary market.

The way it works is when a company is private,

And again let's go back to our example where we said you opened a drone company and let me get on my

wide board here.

OK here you go.

If you open a drone company and you decided that.. Ok you had your initial drone company that was making

about 100 K year and then you went private.

Right.

And you got five million dollars of revenue to open a way bigger company.

OK.

That was making about $2,000,000 every year.

Now imagine you want to go one step further.

You want to grow your company even more.

So you want to go public.

Right.

You want to go from private to public so you get a way bigger company.

Now if you want to go public what are you going to have to do is you're going to have to get funded.

You're going to have to do an IPO which is what we call, which is initial public offering

initial public offering

and this should be in the notes for this module.

Right.

So you got to do an initial public offering an initial public offering means you're going to sell your

stocks for your company to the public for the first time ever.

So out of this company that you have and you own with investors you guys might sell you know part of

it to the public.

OK.

And the public is going to pay you for it.

So you can have an even bigger pie and even grow more.

Right.

So now how do you do an IPO? You're going to hire another company which is going to be called a underwriting

firm.

So underwriting firms basically specialize in doing IPOs.

So they're going to come in they're going to see if they're going to look at your company they'll tell

you Ok you are making $2,000,000 in revenue.

This is the plans that you have you want to expand here

there you want this amount of money, you have this much debt, your product sells for that price.

OK we can probably get you $100,000,000 so they're going to figure out how much they can

get you through an IPO and they're going to figure out what's the best price that they can sell your

stocks at the beginning.

For them to be able to sell you the amount of shares that you want to sell.

Right so they're experts in that.

And obviously that in that company is going to want to give you the best amount of money that you

can come up with without asking for too much because if they ask for too much and your IPO fails you're

not able to get that money then they're going to have a really bad reputation.

So for them they want to get you the most money.

At the same time they want to be able to sell all the shares so they maintain their reputation.

So it's very important for them to come up with an exact price and exact amount of money that they can

come up with for you.

Right.

So in this case they might say OK well we think we can raise you 100 million dollars.

Again we're going to sell a million shares

OK at $100 each.

So we're going to IPO at a price of $100 and we're going to sell a million shares.

So you get your 100 million dollars.

That's what they're going to do.

So once they decide to sell those million shares that's going to happen in the primary market.

So this company the underwriting firm is going to call all the relationships the brokers the banks big

insurance companies that they in the one they have a relationship with us and they're going to call

them now.

Hey look I have this new company.

It's called the DRN

They make really good drones and they're going to be a really good company.

I have some shares I can give you, a hundred thousand shares, do you want some?

I'll allocate you some shares for that IPO and they're going to sell those shares to other relationships

and that's going to be the first time that the shares are sold which is going to be in the primary market.

So those companies the brokers everybody who gets shares can give some of those shares to their biggest

clients.

So if you're a very big client and a big brokerage firm you might get some shares of that company.

Example when snapchat or Facebook went public and they went from here to here who could get

the IPO price who could buy at the primary market.

Very few people we couldn't get any.

A lot of people couldn't get any because you had to be a very big client of a very big firm

to be able to get some of those shares because they're so hard to get by.

Right.

So we rarely trade in the primary market.

We rarely get shares in the primary market because it's so hard you'v got to be somebody very

big to get shares in the primary market.

Now after those shares are sold in the primary market then there is a date where the stock starts trading

on the exchanges which were going to come to in the next module.

But then when these shares start trading and in that exchange they start trading in the secondary market.

So whenever you or I buy something on Nasdaq, New York Stock Exchange, that's all second hand, these stocks

we're already sold, they were already IPO'd, they're in the secondary market now.

We're selling them and buying them from other people who had them were not the first people to get

them ever.

When you're the first person to get the shares ever you've got them in the primary market when you're

not the first person to get them, it's second hand,

You're in the secondary market.

So we're always going to be talking about the secondary market when we're buying and selling securities

because we're not the first people to get them right.