I understand the money is a concept, but for the sake of this, let’s just call it money. I just don’t get where money goes when the market crashes—wouldn’t some stocks go up in proportion to the ones that are down? Or does the money disappear out of the market? And if so, where does it disappear to? Why doesn’t it balance?
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The value has diminished. No money is actually gone.
Value is not money.
I have a rock worth $100. The rock is not a $100 bill; it is a rock. “Worth $100” means someone will offer me $100 for the rock.
The next day, the rock is worth $10. The rock is still not a $10 bill; it is still a rock. I had a rock before and I have a rock the next day. Nothing changed. “Worth $10” means someone will trade me $10 for the rock.
The rock has gone down $90 in value. No money has gone anywhere because I didn’t have money – I had a rock and I still do.
nowhere… same as anything you buy, if that thing gets damaged it loses value… but does your money literally go somewhere when that happens? no, the item is worth less, that’s it
The money doesn’t go anywhere, there is no money – there’s just how much people think a company is worth. Sometimes they think it’s worth more, sometimes they think it’s worth less, but that’s all that’s changing.
You have five widgets, I have five widgets. I sell one of my widgets to someone for a dollar. That implies that your five widgets have a cumulative value of $5. If the next widget I sell only goes for 50 cents, the value of your five widgets is now $2.50, so you lost $2.50 of value.
It’s mostly that the people with cash aren’t spending it on stocks.
The money never existed in the first place. The value is just what someone is willing to pay. If you have something and I was going to pay you $100 yesterday but changed my today and offer you $50 today did you actually lose money? No, you didn’t have the money in the first place.
If you buy a car for $25,000 and drive it off the lot, then try to find somebody to buy your nearly-new car used, and nobody’s willing to pay you more than $18,000, then $7,000 disappeared from the market value of your car. The value of your car, to you, may not have changed in any way, but the *price* of your car dropped dramatically.
Supply vs demand. People are scared that these are bad news, they start selling their stock. In order to sell stock you have to have someone on the other side who wants to buy it. More people are selling than buying, so there is too much supply and if you want to sell, you have to lower the price –> the stock price goes down. When news talk about billions of dollars lost..it is kind of theoretical. They basically reference how much are the stocks worth in specific points of time.
It goes no where. It was never there to begin with. What is lost is potentential profits if the people that own the stocks sold at that value. They now dont have that potential anymore. So if they have to or want to sell they have to sell at a lower price.
As an example if you have a house and the market says your house is worth 1 million today. And then the housing market crashes and now the market says your house is only worth 500k. You didnt lose any money. But you lost the potential to sell your house for a million.
The money goes into the pocket of those that sell it. There is no set amount of money that exists in the market. So if I sell a stock, and no one else wants to buy it, the price goes down (supply goes up and demand goes down).
Value, specifically stock price, is abstract. It doesn’t have to “go” anywhere.
When your friend shares your deep dark secret, where does your trust in them “go?”
It doesn’t go anywhere. It just is reduced.
The overall value of every stock doesn’t balance any more than inflation means there is automatically more cash money in the economy. Or if a famous painting is destroyed, that the value of other paintings must go up. The value is simply destroyed.
When the stock market crashes, the money doesn’t actually “go” anywhere—it just disappears in terms of value. Here’s why:
Stocks represent ownership in companies, and their prices are based on what people are willing to pay. When a crash happens, everyone starts selling, but there aren’t enough buyers willing to pay the same high prices as before. As a result, stock prices drop fast.
Let’s say you own a stock worth $100. If panic selling happens and the stock drops to $50, you just “lost” $50 in value. But that money didn’t move to someone else—it was just a change in perception of what the stock is worth.
It’s like if you had a rare trading card that people used to pay $100 for, but suddenly no one wants it, and the best offer you get is $50. The card still exists, but its perceived value has changed.
The only time money actually moves is when someone sells a stock before the crash—they get to keep their money while others are left holding less valuable shares.
It doesn’t go anywhere. It ceases to exist even hypothetically.
In simplified terms, let’s say you’re selling a product. You charge $100 for that product.
However, nobody wants to buy your product for $100, so you lower the price to $80. Where did the $20 go? Nowhere. Nobody took $20 from you. Your hypothetical earnings per unit decreased, but until a transaction is made those earnings remain hypothetical.
It isn’t a perfect analogy, but it’s quite possible for value to simply disappear, even for more concrete items. If a house burns to the ground, the lost value of the home doesn’t go anywhere, it’s simply destroyed. For the stock market (to my layman’s understanding), the stock price of a company is, at least in principle, a reflection of how much money people expect that company to be able to make in the future. With the tariffs, there’s a fairly wide-ranging fear that many US companies won’t be able to make nearly as much money as expected in the future. Thus, their stock prices go down, and the lost value is simply destroyed, one could say.
The value of a stock is predicated on speculation (that a stock is going to be worth more in the future). It is not tied directly to any tangible value (unless you get dividend), but there are tangible things that can influence it ( earning calls, diversification of assets into other industry, governmental actions). It only truly becomes realized when you pull the money out by selling.
>I understand the money is a concept, but for the sake of this, let’s just call it money.
Then when comparing to stocks, this is already a false context. Stocks are not money. The stock price is just that – the value of the stock. It’s not money.
When stock market “crashes”, they’re referring to the value of the stock in terms of collective price.
Edited: It’s like the value of your house. It may be bought at $250,000, but then the announcement of the construction of a new sewage pant next door therefore causes the house value to drop to $100,000. If someone buys the house at this price, the house price “crashed” by $150,000, and this didn’t involve $150k “disappearing” (the $150k cash is already with the person who originally sold the house before)
>wouldn’t some stocks go up in proportion to the ones that are down?
Stock price is generally the equilibrium agreed price that buyers and sellers agree, and so it is the most traded price.
Where stock price goes down is where the equilibrium is imbalanced, whereby more people want to sell then there people willing to buy, and so there isn’t enough buyers to fulfil those who want to sell.
And so sellers place their sell orders at lower prices in order to entice buys to purchase the stock “at a discount”.
This discount price becomes the new equilibrium, and the difference between the old equilibrium and the new one is essentially the “crash” – just like the house. No money has “disappeared”.
It doesn’t “go” anywhere since the value of the market reflects an estimate of value based on how stocks have recently traded and not any store of cash.
A stock’s price is just the last price someone, somewhere paid for a share of that stock. Technically speaking, it says nothing whatsoever about what someone will pay someone else for the next share of stock that changes hands on that exchange.
When we try to articulate what a company is worth, we just take the last price paid for a share of its stock and multiply it by the total number of shares for that company. The value of the market overall is just the sum of those calculations for all the stocks.
Imagine you have 100 share of Acme stock. It last traded for $10/share. It is reasonable to estimate the value of your shares as 10*$100, or $1000, right? You are just estimating that you are holding $1000 of Acme stock.
Of course, you might then try to sell it and only find a buyer willing to pay $9.90 per share. And you decide to sell it for $990. At no point were you in possession of $1000 (the estimated value of your 100 shares) so you can’t reasonably say that you “lost” $10.
So we are really just talking about estimates of value of something which don’t actually amount to anything until you buy or sell it.
So when you or I buy a stock for $10, we are buying it from another person who decided to sell that stock. My $10 goes to the seller. So now I have $10 less of “money” but I have a stock that the market says is worth around $10.
If more people want to buy that stock over time, it’s value tends to rise. Maybe a year from now my stock is worth around $15 in the market. I would say my net worth has risen by around $5, but I haven’t gained or lost anything, it’s an estimate of my net worth, based on the market’s opinion of the stock. It’s an estimate, because the stock could lose or gain value, and for me, a gain or loss is not “locked” until I decide to sell that stock.
If that company suddenly suffers a major setback, then lots of people won’t want to own the stock, and I won’r be able to sell it for $15 anymore. Maybe people would only buy it for $5. That’s the new market price. The stock fell in value 66%, without any dollars changing hands from my perspective.
Does this make sense?
The market is always getting trades with people putting in and taking out money, all day long. This “locks in” price points. When it crashes, it means that overall, way less people are buying into those stocks, and in fact more of them are trying to sell the stocks, so they have to keep asking for a lower price to be able to sell. The dollars weren’t deleted or anything, because the stock prices are sort of “estimates” of value.
Very simply the “money” in a stock market is the value of all the stocks. In a crash the stocks still exist (assuming the company hasn’t gone under). Their value will have dropped.
Say I have a rare comic (a stock) people want. If I go to sell it people will bid higher and higher for it until they either can’t afford it, they get it, or someone else gets it.
I sell it. That person later sells it for a different price, maybe higher, maybe lower, and so on.
Now say the artist behind that comic does something bad, basically nobody wants the comic anymore whatever the reason is. The last person to own it still has it, it hasn’t gone away, but nobody else wants to buy it. It’s value goes down.
The stock market is the value of all the comics available to buy.
The word you looking for is “value ” not ” money”.
Say you have a company, you want investors to step in so that you can increase cash liquidity and grow your company.
You decide to sell some parts of the company in exchange for money.
Each part can be though of a percentage of your company, say 1 percent for simplicity ‘s sake.
Investors, using different index will judge how much money each 1 percent of your company is worth.
If they are willing to fork out l
$100 per percent, then your company share would be worth $100.
Now if something happens and investor suspect your company isn’t worth as much,they ‘ll think you’re a bad investment and in risk of getting ripped off.
They then sell those no longer wanted shares and as there are more and more of your shares available to buy and less and less interested buyer, you’re not getting $100 per share but gonna havd to settle for way less.
Your company’s share have lost value, but no money has been lost per se.
A lot of answers are saying the same thing – that money and value aren’t the same thing. This is true, but doesn’t answer your question in the other way.
You gave someone else $100 for a stock because that’s what everyone else was doing.
Later on, nobody wants to buy your stock for more than $10.
The money went to the person that sold you the stock. They got the $100 – you just couldn’t get $100 back from someone else.
What they did with the $100 you gave them – maybe they bought bonds, maybe they held cash, maybe they bought dinner.
It isn’t zero-sum in the sense that there is a fixed amount of money in the stock market so pushing down one area makes the other area go up. There is a fixed amount of money in the economy (well, there isn’t, but let’s pretend there is for this example), and whether some of that is in the stock market or some of it is in other areas of the economy (goods, hard assets, cash, doge-coin, etc) is how it balances.
There’s also a lot of rubber-band-iness to markets and unrealized gains. Like we saw houses shoot up in price a crazy amount so lots of people have unrealized profits on their houses… but now nobody is selling and nobody is buying, causing the prices to slide back. If everyone tried to cash out, the market would crash faster than the houses could get sold. People who can sell excess real-estate while having a place to live stand to benefit right now while the bubble is holding its breath, but that is temporary. Without something else changing, those unrealized gains are going to get wiped out when the market corrects.
It’s because the companies are now worth less than they used to be.
Imagine you’ve got a used car and it’s worth $10k. Then news comes out that that model car has a lot of transmission problems when it gets older, and suddenly it’s a lot harder to sell, and you’ll be lucky to get $7k for it. You’re three thousand dollars poorer. Nobody else’s car got any more expensive.
Same idea in the stock market. Two days ago, the world generally agreed Apple was worth about $3.4 trillion. Then things changed and it looks like it will cost Apple more to make stuff and they’ll sell less of it. So now it looks like Apple’s only worth $2.9 trillion. People simply think Apple is going to earn less in the future. There doesn’t have to be some other company that gains from it.
Investors today are about $5 trillion less optimistic about the future than they were on Wednesday. That money went wherever lost hopes go.
Firstly, there are other things you can put your money other than stocks. You can buy currency, government bonds, metals, property or even just put it under your mattress. Stocks are higher risk but higher return. If the risk outweighs the potential for profit, you move it to somewhere safer which might not even offer any profit but at least you won’t lose it.
Secondly, the money lost in stocks is just potential. If I buy a share at 10 and it goes up to 20, I only have that 20 if I sell it. I might get it wrong and sell when the price is lower – maybe even lower than what I bought it for. This is why Musk is the richest person on earth but could still lose much of it.
If the market crashes some people will get back less than they put in, some will just lose that potential, while others have borrowed money in the hope that the market will do well and they lose even more. These are the people who jumped out of windows in the ’30’s (although fewer people did that than the stories tell.)
This is why taxing the rich is so difficult: If I have a share worth $20 don’t actual “have” $20 until I sell it and I have no idea what price that will be till it happens.
All these answers make me ask why the fuck we have a stock market in the first place if it’s so fucking nebulous. Like yeah I get it’s a rich person’s playground that some of us might be lucky to get in on but it’s still insane.
Say there are 100 shares of a company. Everyone that owns a share owns 1%.
Last week, if they wanted to sell a share to someone else they would be able to charge 100$ (say). They could do that because other people figured the company would be worth that much money, factoring in future earnings.
This week someone burned the bridges that this company uses to build and sell their products and it’s not clear if the company will recover.
Now that the future earnings are questionable, people are unwilling to pay 100$ for the share. Maybe there will be future losses instead.
Other instruments — cash, bonds, annuities, etc.