Is it true that when
market is super-down, somebody makes a lot of money?
Example: I bought shares of ABC company at $80, but the shares are now worth $15. Now think where does the extra $65 go?
Lets see four different entities: A company and three people named X, Y, and Z. A wants to sell the shares and X,Y and Z has initial positions as
·
A has $0 (but owns 1
share)
·
X has $200
·
Y has $500
·
Z has $1000
1.
A has initial public
offering called IPO, and sells 1 share of stock to X for $30.
2.
A stock value goes
up, and X sells his share to Y for $80.
3.
A stock value
crashes, and Y sells her share to Z for $15
Scenario 1:
·
A has $30 (down 1
share, up $30 from initial)
·
X has $170 ($200-$30)
·
Y has $500
·
Z has $1000
X worries and sells
his share to Y for $80.
Transaction 2: Mert sells his
share to Rachel for $80
·
A has $30 (down 1
share, up $30 from initial)
·
X has $250 ($50 up
,$170+$80 = $250)
·
Y has $420 (up
1 share, down $80 from initial, i.e. $500-$80=$420)
·
Z has $1000
X went right and the
burst occurred. Now Y is worried, so Y sells
to Z for $15
Final Transaction: Y sells his
share to Z for $15
·
A has $30 (down 1
share, up $30 from initial)
·
X has $250 (up
$50 from initial)
·
Y has $435 ($65
down from initial($500),$420+$15=$435)
·
Z has $985 (up 1
share, down $15 from initial)
In conclusion ,we can see that
Total money lost = Total money
gained and
Total number of stocks lost =
Total number of stocks gained
It is terrifying to hear that the share market has lost $45 billion dollars in one day.But should we really worry about this or does this fall have an impact on the shares we own? Not necessarily.
The share market can be compared to any market and in fact share investment is just like property investment.
When you invest in a property ,there are mainly developer and buyer.The developer gets benefited only once and thereafter buyer gets the benefit or losses on that property.Similar is the concept of share market.Once the initial public offering is issued,the the shares are traded on the share market and the company doesn't receive any money from buyers selling their shares to someone else.
It is terrifying to hear that the share market has lost $45 billion dollars in one day.But should we really worry about this or does this fall have an impact on the shares we own? Not necessarily.
The share market can be compared to any market and in fact share investment is just like property investment.
When you invest in a property ,there are mainly developer and buyer.The developer gets benefited only once and thereafter buyer gets the benefit or losses on that property.Similar is the concept of share market.Once the initial public offering is issued,the the shares are traded on the share market and the company doesn't receive any money from buyers selling their shares to someone else.
