Academic Master

Business and Finance, Human Resource And Management

How the Stock Market Works


In this project, investment in stocks is done on an online website to simulate real-life trading. Different industries are included in the practice of creating a portfolio of diversified investment. One mutual fund is also purchased to see how they behave in market trading. This stock market paper will show how the practical implication of trading has worked. The strategy used for investment, any changes in strategy and the overall performance observed. The key learning outcome of this project is also observed.


Before moving on to the details of investment, let us discuss some of the details about how investment is done in the stock market. The basics about stocks and how they are traded in the stock market is described.

Buying a stick means that the person holds ownership in the market. The estimated worth of the company determines stock price. For further speculation in the market, the supply and demand rule is followed to determine overall pricing level. Stocks are traded in markets for stocks such as NYSE that is New York Stock Exchange is an example of a stock market. Similarly, companies get themselves registered in their respective stock markets. The company gets money from selling IPO and do not get any return for further speculation in the market.

The reason why shares are bought is that their value changes over time. There is a chance for the investor to win and lose cash by making the right decision at the right time. Traders and investors make a change in the pricing of stocks. Other than capital return, some established companies also offer a dividend to the shareholders. This dividend comes from the earning of the company in a year. Many other benefits come along with the purchasing and selling of stocks.

Portfolio selection and why these stocks were chosen

The balance limit provided was 25,000 and I had to invest in a portfolio comprising six stocks. One of them should be mutual fund and others can belong to any category of stocks. The stocks I chose for investment and their reasoning is as follows.

In mutual funds, I invested in PTTAX which is an A class fund of PIMCO. The reason behind selecting this is its high amount of total return. It not only provides high return but also protects the principal. This is a high-quality fund and I selected it to diversify my portfolio. Unlike other bond funds, this has a worldwide presence that decreases the level of concentration. The risk is easy to manage because of high flexibility and response to economic conditions. The number of stocks I invested in this mutual fund is 3000. It will provide a strong return in long terms and have the potential for both incomes as well as capital appreciation.

In stocks, the first stock I invested in is APPLE. I bought 25 stocks of Apple at a total price of 4,449.75. The reason for choosing this stock is its high market demand. If in need instant money in future, I will be able to generate it by selling this stock. This company provides massive returns in the capital. As this is an established company, it also offers a high level of dividend income. It is possible to get apple stocks on a bargain price. Although it has high valuations, still it is available on discount.

Second stock I chose was on Facebook. I bought 23 stocks of Facebook for 4,178.87. Third stock is of Google. Five units of Google stock were purchased at 5,510. The reason for choosing these two stocks is somewhat similar. Both these companies are performing well in the world of online advertisement. Even in future, these companies get a larger share of the market and produce high returns. The level of risk in these stocks is less.

The last stock I purchased was from Home Depot Company. Fifteen stocks were purchased at the total price of 2744.40. This is a popular company and if we see historical data, it has paid high dividends to its investors. In 2017, its performance was not up to the expectations, but it is still in the competition of providing investors with a high level of return.

The total amount invested sums up to be 19,883.42. The balance remaining after the investment is 5,116.42. This is an amount left for safety purposes. In case, any stock has an increase in the net price. This may be useful for the future trading and withdrawal of funds.

Description of trade

Here I will be discussing the profit I gained after making trade transactions. The mutual funds of PTTAX are still at 3000 and have not experienced any profit or loss because their price is constant and no transaction is made.

In terms of stocks, HD bared the loss of 60, which is negative 2.19% as compared to the actual price. FB gained a profit of 1.87%, which is 78.20 in terms of money. The overall price of Google raised by 161.70 in this portfolio that is 2.93%. APPLE earned the profit of 0.75 that is 0.02% of actual price.

These values show that the portfolio is in a long position with the net worth of $20,064.07. The actual price of the portfolio at the time of investment was 19,883.42. Therefore, the net benefit is $180.65.

Strategy used

The approach I used in the investment of portfolio is defensive. All the stocks I chose for investment were of well-reputed companies giving out a high return. The level of risk was close to none. The risk of losing principle was low. The diversification in the portfolio was brought by keeping the stocks from multiple sectors. Mutual funds, social media, tech manufacturing and home supplies company was selected as well.

The overall performance of stocks and thorough search of stocks

The overall performance of stocks was well. The portfolio gave out a positive return. Only the stock of Home Depot went through the loss of $60. Google provided the highest level of return. Mutual fund investment remained constant because of no variation in price. Apple stocks provided a minimum level of return with only 0.02% rise in price level.

This high performance was because of the defensive approach to investment because all the stocks had a very low level of risk factor. The number of stocks was less because the share prices of these companies are more.

These stocks were selected for investment after proper market research. The risk level of these stocks was really less and they have given out high-quality performance over the past years with good return yield.

Learning outcomes

This game was helpful in understanding the real world scenario of investment. Before entering into the actual trading environment, this virtual trading scenario gave me the experience. It is the right thing to do for practice. In order to get benefit from stock market investment, routine practice is important. The clear understanding of financial risks and core concepts of investment. The interface of this virtual stock market was also easy to understand and handle. Rather than risking the real money in stock market operations, it is the best practice to do it with virtual money. The level of exposure was increased because of this exercise. It developed a sound level of skills for investment in future.



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