April 15, 2021

Stock Market 101: Do’s and Don’ts for College Students

The Stock market. What is heaven on earth for some, is literal and/or figurative torture for an equal number of people. 

Numbers constantly flying around, money to be made (or lost, for that matter), strategy, and endless data to pour over, are all aspects of this integral part of the U.S. economy that could draw one in, or push one away. 

However, the other week, there was a movement that succeeded quite well in drawing people in. 

The mission to skyrocket GameStop’s stock far beyond what the company is actually worth just for the sake of angering a couple of several-boat-owning hedge fund managers proved to be quite appealing, especially to those on Reddit. 

For those not familiar with the stock market, here is how it works, in a nutshell. 

Eric Zanner, a professor of business at Capital University said, “The stock market is a way for investors…to come together with companies that are trying to grow their business.” 

Dr. Saurav Roychoudhury, a professor of finance and economics at Capital University said, “[the NASDAQ, S&P 500, and Dow Jones] gives you an idea of how the stock market is performing in the U.S.”

The two main ways to buy and sell stock are the traditional way which involves going through brokerages and things like that, or you can try to do it yourself with apps like Robinhood. 

Robinhood gives you the power to buy and sell stock with the convenience of an app, however, the expertise of going through people who work with stock for a living is gone. 

The incident with GameStop happened because brokers were shorting the stock. Meaning, GameStop was looking like it was walking up to death’s door, so brokers were betting that the stock would keep going down. 

As a result, they were borrowing stock at a low price but were forced to give it back at a higher price, which means they lost money. There it is, in a nutshell. 

Some things a college student should keep in mind if they are looking to get involved in the stock market is that “if you have debt, credit card debt, that sort of thing, pay that off first… [it] probably compounds around 14% [per] year,” Zanner said. 

A college student starting out in the stock market is incredibly unlikely to see that same sort of growth in stock over the same period of time. 

Additionally, trying to day trade and make some quick money is also not a good idea. If you buy a stock in the morning when the market opens and then try to sell it when the market closes, there is only a 50% chance that the stock will go up in value for that one day specifically.

The longer you wait to sell, generally speaking, the higher the odds that the stock’s value rises. 

Something else to be wary of in the near future is that large brokerages and hedge funds are waiting to try to pounce on current college students. 

Within the decade, current collegiates will be starting to make the thickest paychecks they will see. As a result, the wolves of Wall Street will want them to start investing– a lot. 

Speaking of being hunted, that is sort of what can happen if someone tries to buy or borrow a stock that they cannot afford. When this happens, it creates what is called unsecured debt balances. 

Say you try to buy a $500 dollar stock, and do not have that amount of money in your account within three days, you have an unsecured debt balance; if you do not, the brokerage or hedge fund will sell that stock. However, if it sells for less than $500, then they come after you sort of like they would for a missed credit card payment, only more. 

So, still want to hop on Robinhood?

  • Josh Conturo is a reporter for the Chimes and a sophomore studying emerging media with an emphasis on journalism, and loves all things related to cars, coffee, and comedy.

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