This is probably a typical beginner question.
Imagine I buy today a stock for 10$. The market gods are good to me and one day later it has a value of 100$, at which point I sell it and cash out.
Are those 90$ profit I made free money? Where do they come from?
Are those 90$ profit I made free money?
Yes, other than potential taxes of course :)
Where do they come from?
You paid $10 to one investor when you buy the stock and received $100 from another when you sold it. No money was "created", only exchanged. Whether they make a profit or not depends on what they bought/sold the stock for.
Note that the exchange only facilitates these transactions. You are always dealing with another investor on the other end - the exchange just acts as a mediator so you don't need to deal with the other side directly.
D Stanley makes a good point;
The reason the stock market is so volatile is that the 'value' is made-up, more or less, at any given point in time by how much any one person is willing to pay for a share of a given stock or fund.
As an example, if you bought an apple for $1, and then sold it to someone else for $2, the $1 in profit didn't appear out of thin air, the product (The apple in this case) was just worth more ($2) to the other person when you sold it to them than it was worth to you ($1) when you bought it.
Stocks can appreciate in value, if people think they're worth more, just like a home can appreciate in value. If you buy a home for $100,000 and later sell it to someone else for $500,000; the person you've sold it to hasn't necessarily lost $400,000, as long as the home is actually worth that amount on the current market and people are willing to pay that amount for that product.
