It is reported that only 10% of the people who invest in the stock market win or become successful, the other 90% lose their money. Losing money in the stock market is normal, so this means that you will most likely lose money at one point or another. The question that lingers in people’s minds is where the money goes after you lose it. For starters, you don’t lose money you lose the value of the stock, because you cannot earn any money if you don’t sell the stocks you own. The stock price is not the same thing as money; it is usually an estimate of what the stock is worth.
When a company goes public it releases a number of shares that are valued at a certain amount, once you buy the number of shares that you can afford, you become a part of the company. When the company earnings are good, the market value of the shares goes up, meaning that when you sell the shares you own you will get your profits. The vice versa holds true, when the earnings of a company go down because of certain factors, the value of a stock will go down hence selling the stock will not yield any profits. That is how the stock market works.
The Company Is Not In The Picture
Once the money is lost, the company that issued the stocks does not get the money. Primary market is the initial transaction between the company issuing the stocks and you, the buyer. This is the only time that the company can receive money from you. Although, the company can buy all the shares back, you have the right to sell the stocks anytime you want. The company does not receive anything from the stocks whether the market value is good or not.
Does The Money Disappear?
Regardless of whether the market is appreciating or depreciating, it is the supply and demand drive that determines if you will lose or gain money. Going back to the question, once you lose in the stock market, the money does not disappear; the value of the stock depreciates which might cost less than the original price.
Reasons Why People Lose In The Stock Market
Before you can understand where the money in the stock market goes, you need to understand why people lose in the first place.
- People lose money due to the unpredictable market value; once the company is affected by the internal or external factors negatively, the earnings of the company drop, hence the market value of the stock drops.
- The timing of investing in the market influences the gain or loss of stock value; investing during a recession is beneficial, you will own your shares at a cheap price.
- Being too hasty; it takes patience to be able to get your investment back in the stock market. Most of the new investors usually trade with haste as they want to make quick money. Stock market does not provide quick money. You have to develop patience if you wish to make profits.
How To Avoid Losing Money
It is important for you to learn how to avoid losing money in the stock market. This way you shall ensure that you get your profits back. Below are tips to help you avoid losing money;
1. Identify And Observe The Market Phase
The market phase refers to the trading or the trending times of the stocks. If you are unable to understanding the market phase you may end up investing using the wrong indicators. It is thus important for you to observe the market phase. Don’t buy a stock based on its past performance. The stock value is based on the performance of the economy. This means that a stock might be up during a period of time and down in another.
2. Take Emotions Out Of The Equation
In the stock market, if you want to make money, you trade first and ask questions later. If you have a stock that is gaining sell it in an instant and don’t debate about it. This is because the market is unpredictable and the stock value may depreciate fast. You also need to be patient, don’t quit the game because you have lost money in the first round. That is the nature of the business.
3. Observe Before Trading
If you are new to the stock market it is recommended that you learn about the basics before you invest. This will help you avoid any mistakes that might cause serious problems. It is also good to observe the trend of the stocks before buying or selling of the stocks.
Losing money is inevitable in the stock market. What matters is not the fact that you lose money or where the money goes, but how to avoid the mistakes you made before.