Question about the stock market.
Discussion
I'm totally new to it all and I've been reading up on how and where to invest etc but one thing I don't understand is how and why do the prices of stocks fluctuate?
Like one day a certain stock can be £100 the next £50 how did it lose half it's value in a day and where did that money go?
Sorry if this is a seriously dumb question.
Like one day a certain stock can be £100 the next £50 how did it lose half it's value in a day and where did that money go?
Sorry if this is a seriously dumb question.
Say I offer you some clean underwear and you offer me a fiver for them.
The next day I s
t in them, how much are they worth then!?
Same for stocks and any other thing you can buy and sell. Its only worth what punters think its worth.
BP dropped in price recently because of unknown risks and costs associated with the spill.
Once the well was capped its price regained somewhat. But with the total costs still unknown its still not back to where it was.
Simple supply and demand dude. Economics 101.
The next day I s
t in them, how much are they worth then!?Same for stocks and any other thing you can buy and sell. Its only worth what punters think its worth.
BP dropped in price recently because of unknown risks and costs associated with the spill.
Once the well was capped its price regained somewhat. But with the total costs still unknown its still not back to where it was.
Simple supply and demand dude. Economics 101.
ringram said:
Say I offer you some clean underwear and you offer me a fiver for them.
The next day I st in them, how much are they worth then!?
Slightly more complex than that.The next day I s
t in them, how much are they worth then!?The next day you still have not s
t in them but they are now worth only 50p. Why? well you went out for a bad curry the night before & now the market "expects" you to st in them. Still clean & unchanged from the day before but they are worth less because of expectations! 
Smashed said:
I'm totally new to it all and I've been reading up on how and where to invest etc but one thing I don't understand is how and why do the prices of stocks fluctuate?
Like one day a certain stock can be £100 the next £50 how did it lose half it's value in a day and where did that money go?
Sorry if this is a seriously dumb question.
There isn't any money. Like one day a certain stock can be £100 the next £50 how did it lose half it's value in a day and where did that money go?
Sorry if this is a seriously dumb question.
Go to five friends, tell them you have a great business idea, ask them if they will each give you five pounds. You have a market capital of £25. five shareholders and an idea.
You go to market, you buy assest, employ someone, start trading and in year one the business makes £100 profit.
You deciede to give your investors £1 each as a dividend, and they reckon based on the profit their shares are worth £25 each.
So your first friend decided he needs a new car and wants his capital (the £25 quid he THINKS the share is worth) he puts it up for sale (on the stock market) Some shiny suited oik tells him he has a mate who will buy it, but he doesn't think the company will make £100 next year he forecasts it will make £50, so he offers (say) £17. The next day you annouce the company is doing better than last year, so the same guy offers £28
Your business hasn't changed, your still trading and making a profit, no actually money in the busines is created or lost, a bit of paper changed hands and the value of that paper changed
HTH
Gargamel said:
Smashed said:
I'm totally new to it all and I've been reading up on how and where to invest etc but one thing I don't understand is how and why do the prices of stocks fluctuate?
Like one day a certain stock can be £100 the next £50 how did it lose half it's value in a day and where did that money go?
Sorry if this is a seriously dumb question.
There isn't any money. Like one day a certain stock can be £100 the next £50 how did it lose half it's value in a day and where did that money go?
Sorry if this is a seriously dumb question.
Go to five friends, tell them you have a great business idea, ask them if they will each give you five pounds. You have a market capital of £25. five shareholders and an idea.
You go to market, you buy assest, employ someone, start trading and in year one the business makes £100 profit.
You deciede to give your investors £1 each as a dividend, and they reckon based on the profit their shares are worth £25 each.
So your first friend decided he needs a new car and wants his capital (the £25 quid he THINKS the share is worth) he puts it up for sale (on the stock market) Some shiny suited oik tells him he has a mate who will buy it, but he doesn't think the company will make £100 next year he forecasts it will make £50, so he offers (say) £17. The next day you annouce the company is doing better than last year, so the same guy offers £28
Your business hasn't changed, your still trading and making a profit, no actually money in the busines is created or lost, a bit of paper changed hands and the value of that paper changed
HTH
k that. Sounds too complicated... i'll have me five quid back The stock market explained simply:
'Once upon a time, in a village, a man appeared and announced to the
villagers that he would buy monkeys for $10 each.
The villagers, seeing that there were many monkeys around, went out to
the forest and started catching them. The man bought thousands at $10
and, as supply started to diminish, the villagers stopped their effort.
He further announced that he would now buy at $20 for a monkey.
This renewed the efforts of the villagers and they started catching
monkeys again. Soon the supply diminished even further and people
started going back to their farms. The offer increased to $25 each, and
the supply of monkeys became so small that it was an effort to even find
a monkey, let alone catch it!
The man now announced that he would buy monkeys at $50! However, since
he had to go to the city on some business, his assistant would now buy
on behalf of him.
In the absence of the man, the assistant told the villagers. 'Look at
all these monkeys in the big cage that the man has collected.
'I will sell them to you at $35, and when the man returns from the
city, you can sell them to him for $50 each.' The villagers rounded up
all their savings and bought all the monkeys.
They never saw the man nor his assistant again, only monkeys everywhere!
Now you have a better understanding of how the stock market works.
Everything has a value of what cash and assets the business has. Everything else is just people's best guess of future sales, income etc etc. Everyone has a guess and all the guesses together become market price. Still no idea how much a monkey's worth though
'Once upon a time, in a village, a man appeared and announced to the
villagers that he would buy monkeys for $10 each.
The villagers, seeing that there were many monkeys around, went out to
the forest and started catching them. The man bought thousands at $10
and, as supply started to diminish, the villagers stopped their effort.
He further announced that he would now buy at $20 for a monkey.
This renewed the efforts of the villagers and they started catching
monkeys again. Soon the supply diminished even further and people
started going back to their farms. The offer increased to $25 each, and
the supply of monkeys became so small that it was an effort to even find
a monkey, let alone catch it!
The man now announced that he would buy monkeys at $50! However, since
he had to go to the city on some business, his assistant would now buy
on behalf of him.
In the absence of the man, the assistant told the villagers. 'Look at
all these monkeys in the big cage that the man has collected.
'I will sell them to you at $35, and when the man returns from the
city, you can sell them to him for $50 each.' The villagers rounded up
all their savings and bought all the monkeys.
They never saw the man nor his assistant again, only monkeys everywhere!
Now you have a better understanding of how the stock market works.
Everything has a value of what cash and assets the business has. Everything else is just people's best guess of future sales, income etc etc. Everyone has a guess and all the guesses together become market price. Still no idea how much a monkey's worth though
GT03ROB said:
ringram said:
Say I offer you some clean underwear and you offer me a fiver for them.
The next day I st in them, how much are they worth then!?
Slightly more complex than that.The next day I s
t in them, how much are they worth then!?The next day you still have not s
t in them but they are now worth only 50p. Why? well you went out for a bad curry the night before & now the market "expects" you to st in them. Still clean & unchanged from the day before but they are worth less because of expectations! 
Gassing Station | Finance | Top of Page | What's New | My Stuff