I twice mentioned, in my last missive, not to confuse the economy with that of the stock market. The economy is fairly easy to grasp. While the stock market demands a somewhat different perspective.
Think of the stock market—or the market as its called—as a giant casino. This casino is open to anyone and is played with chips. Folks who decide to “play” in this casino go to the cashier’s wicket and trade their cash for chips. And like other real casinos there are just about always the same number of chips in circulation. This latter point is the very important one to keep in mind and I’ll touch on it later.
In this casino there are hundreds of tables. And at each table will be a couple of people who manage it. And around the tables are the players. Now in a normal casino the players would be folks who had bought the chips. This casino though, is different. The people who bought chips aren’t allowed on the casino floor. They must sit in chairs in the balcony above the floor and look down at the action. They “play” in the casino by giving the folks around the tables their chips and its those people who do the “playing”. The folks doing the playing are called the dealers.
Now, unlike a normal casino, there is no overt betting going on. Instead, the dealers (who play on your behalf) offer to sell your chips hoping that one of the other dealers will buy them at their asking price. And here is where the important point comes in. There are always the same number of chips. A chip cannot be sold unless another dealer agrees to buy it at the asking price. If a chip is on the table it is for sale at a certain price. If another dealer buys it at that price then the chip trades hands. If no one is willing to buy at the asking price the selling dealer can lower the price until someone agrees to buy it.
Have you noticed something strange about this casino? If not then here it is. The folks making the sells and buys—the dealers—haven’t any chips of their own. They use the chips bought by the plebes up in the balcony. And another curious thing is the fact that these dealers make their own money by charging a transaction fee for every chip, either bought and sold, on behalf of the folks upstairs. In fact the dealers haven’t coughed up any cash for their own chips. No need. They make enough money acting as proxy buyers and sellers.
Nice job huh? Go to work every day without a drachma in your pocket. Do some selling and buying and you go home with your pockets full. How full you ask? Well one needn’t be a rocket scientist to figure that one out. You do as many sells and buys as you can. Always using someone else’s chips of course. And if the folks in the balcony make any money at the end of the day? That’s great bully for them. And if they lose money? Well thats too bad but they need to bear up and come again the next day.
Step right up folks and try your luck. Three lucky balls for only a dollar. Its easy. Just watch.
This entry was written by , posted on 03/09/2009 at 7:28 AM, filed under Business, Life and tagged Business, Economy. Bookmark the permalink. Follow any comments here with the RSS feed for this post.