What exactly does it mean when the stock market crashes, in layman’s terms?
March 19th, 2009 | by Michael |
M J asked:
I know basically what a stock is- a buisness or company divided into shares of the profit, which are sold in the stock market. But what does it mean when the stock market crashes? What exactly is the “Dow” and why do people want it up and not down? I need this in simple terms please- its not for a school thing, im just trying to understand how this works. Thank You!
MAURICIO
I know basically what a stock is- a buisness or company divided into shares of the profit, which are sold in the stock market. But what does it mean when the stock market crashes? What exactly is the “Dow” and why do people want it up and not down? I need this in simple terms please- its not for a school thing, im just trying to understand how this works. Thank You!
MAURICIO
3 Responses to “What exactly does it mean when the stock market crashes, in layman’s terms?”
By OPM on Mar 21, 2009 | Reply
A crash occurs when sellers cannot find any buyers at any price. There is no one willing to buy ownership of shares of a company you own no matter how far you drop the price to sell. A crash is a huge drop in price. The Dow is an average of thirty major stocks’ prices. They want to make money, so they want it to go up. If it goes down, then if they sell they will lose money. Buyers would like it to go down before they buy.
By BoshTalk on Mar 23, 2009 | Reply
To add to OPM’s answer: There is ALWAYS a price that a stock will sell, however the price may be crippling to the investors who originally bought it. Market “Crashes” occur over a sector, or sectors) of the market (ie.energy, tech, pharmaceutical, etc). These crashes are usually a result of panic from news. Whereas a single company’s stock price may plunge when news breaks that its product caused the death of 200 customers, a market crash results in news that affects the entire sector. For the current financial crisis, the news of thousands of defaults on sub-prime mortgages rocked the entire financial sector because finance is interconnected with every industry that borrows money or insures the money that was borrowed.
On a side note, there is actually a small class of investors who love to see the market go down. These investors (who speculate that a stock price will go down) sell insurance policies called a “put option” to stock-holders who think the stock will go up. If the price drops to a certain point, the investor who sold the “put option” gets to cash in. It’s a little more complicated than that, but it is an example of those who like to see the market fall.
By Mogollon Dude on Mar 25, 2009 | Reply
The markets being manipulated . To under stand this understand how crooks work .