I just got into the stocks market. AFAIK every transaction must have someone selling and someone buying, both thinking that they will be making money. How can both be making money?
Does that mean at least half of everyone in the stocks market will have to be losers?
In: 97
The person selling is making a profit if they bought at a lower price. The person buying is thinking they will make a profit in the future when they sell, or via dividends. They aren’t making money in that moment. But there’s no reason to think either of them is a loser. It’s not a zero-sum game.
The person who sold might have gotten the stock a long time ago and it increased in value well, so they make money. The person who bought receives an item that is worth the amount they spent, so they didn’t lose money. Even if the stock price goes down they haven’t lost money, although their worth has decreased. The stock can increase in price and the buyer can then sell for a profit. And then later that buyer could sell for a higher price, and so on. It’s only really a loss if you sell at a lower price than what you bought.
You said you just entered the stock market. You didn’t lose money when you bought your first stock. The person who sold the stock you bought may or may not have sold at a profit. You can’t be sure.
Similarly, when you sell that first stock you bought, it is likely to be bought by a person who hasn’t owned that stock before. The only winner/loser is you, and you can’t know the other party’s financial position
I haven’t done the specific math to be sure, but the above two cases should show that it’s not a zero-sum game
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They can both make money. If I hold the stock for 10 years while the value rises from $10/share to $30/share, then sell it to you and you hold it for 10 more years while it rises to $50/share, we both make money. I just make mine 10 years before you do.
Yes to an extent they are zero sum. Someone is usually going to be losing out there. There isn’t necessarily a loser in every transaction but there always is losers in aggregate. For example, there were tons of suckers that bought PTON (peloton) at 171.09 per share (ATH) and are significantly underwater and will likely never recover their money. A better example of a zero sum game is options markets, there’s always a winner and loser on every trade.
I think it’s like a zero sum game except the government kept printing more money and the company kept diluting stock shares by adding more stock shares.
It’s similar to Multi-level Marketing. The next person who bought the stock shares hopes future buyers will buy the share at a higher cost. But unlike Multi-level Marketing, there are some restrictions (such as limit down) to make stock crashes more difficult to happen.
Prices for stocks constantly go up and down. If market price for a certain stock is $100 today, a seller who bought the stock at $50 per share is going to make a big profit. But if he bought it at $150 per share, he’d be selling at a loss.
But people sell at a loss all the time. Maybe they think it’s better to sell now because they think the price will only keep dropping. Or maybe they need to cash to pay for some emergency. Or maybe they found something else to invest in that they really believe will jump up very high in price.
You can sort of mathematically divide stock purchases into two components: investment and day-trades. Most stocks go up in price over the long term, and/or pay dividends, so if you buy a stock and hold it for a long time on average you’ll make a profit. In the short term, stocks tend to fluctuate up and down a lot.
If you’re day trading and trying to buy high and sell low relative to the average price, then people who manage to pull this off and sell at a high point will gain, while people who buy at a high point will lose, at least compared to what they could have if they sold at average.
If you’re buying and holding, almost everyone is a winner unless you get unlucky.
If you add the two together then you get more winners than losers, but definitely some of each.
No. Because the person you are selling to could of bought lower than the current price. The long story short is no 50% of people in the market will not always be losing money based on your theory. Now how much of people will be losing money is dependent on your time period and volume etc and is quite difficult to determine without knowing their buy price
No, because the price could keep on climbing. It also depends on whether the stock eventually goes back to zero, leaving the last person who bought high holding the hot potato.
Example, I buy a stock of a new company that launched for $1 and the company does well, I sell it to you for $2. Then it keeps going well, and you sell it to your buddy for $4. Buddy sells it to Mickey Mouse for $8. Mickey sells it to Alice for $16. Alice sells to Joe Mama for $32.
So far, 5 people have made a profit. I only made $1 when, theoretically I could have sold directly to Joe Mama and made $31, but I did not LOSE money.
Anyway, the company turns out to be a scam and goes bankrupt, the stock price crashes to $0 and Joe Mama loses $32.
The amount of money ended up balancing out, but the number of people who lost money was not 50:50, it was 1:5.
In terms of retail buyers, the price didn’t even balance out. It’s negative – it started at $1 but went to $0.
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