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
Seller can make money or lose money depending on what he paid when HE bought the stock The buyer will make money or lose money later when he sells his stock.
* Don’t forget that some selling is to “cash in an investment” because the seller wants cash now.
* Also, the buyer is hoping for growth in the stock (future gains) so they may want to “buy low, and sell high”
If by losing money you mean buying things then yes. But in that sense you also lose money every time you go to the grocery store.
Let’s say you owned a house. You bought it for 100k. At some point you sell it for 200k. You’re making 100k. Not only that, but everyone on your street is also up 100k on their house.
Later on, the house is worth 400k. The guy who bought it from you sells it and pockets 200k profit. And everybody else on the street is also sitting on a $400k asset that they might have bought for as little as 1-200k. So everybody is ahead, as long as there’s a demand for those houses. Not even for all of them, just as much demand as there is supply of people willing to sell at that moment.
Plus the real estate agents and notaries and “for sale” sign manufacturers make money along the way.
You are right that there’s a seller and a buyer in a stock transaction.
You are incorrect that both parties think that they are making money. Most of the time, it’s just a trade where the value of the money and the stock are the same. They’re just trading 1-for-1 two things of equal value (at the time of the transaction). Nobody’s making money except for the broker (ETrade, or whoever) that’s charging both of you a small fee to document the trade and keep your account records.
The value of things goes up and down, in part because someone does / makes something useful, and in part because someone thinks that something someone did / made is useful. The value of money and stocks goes up and down. They’re alike in that way, but money is special in that you can use it to pay for things. Stocks, on the other hand, represent a share of the value of something — like a company; you can’t buy stuff with it, but you can trade it, and even trade it for money.
The important thing to realize is that there’s not a fixed amount of “value” out there. It’s not like a bag of candy where if I take one there’s one less for everyone else. It’s more like a candy factory where I own 10% of the candy in the bowl and more candy is constantly going in and out.
You make money in stocks by trading money for a slice of the company. You pay a price based on how much that company seems to be worth. You hope the company does / makes stuff so that it grows, and your piece with it. Then you can trade that bigger and more valuable piece for money again — more than you started with. There’s nothing lost here. People lose money when they buy a share of something that loses value over time — perhaps people stop buying the company’s things, maybe they couldn’t get the materials they need, whatever… If the value goes down compared to when you bought it, and you trade it for money, you’ll get less than you had before — a loss.
I buy a stock for $1 and sell it to you for $2.
You buy the stock for $2 and sell it to Ronald for $3.
Ronald buys the stock for $3 and sells it to Allison for $4.
The company runs into problems and Allison sells her share for $1.
How many people in this line of transactions lost money?
There’s 100 factors that can go into an individual persons decision to buy or sell a stock, but no there’s not always necessarily a ‘winner’ and a ‘loser’ in a transaction. Everyone has different investing goals. Maybe someone makes some money on a stock but the stock isn’t increasing in value as quickly as they’d like, so they sell it to someone else who’s more willing to make profit over the long term.
Everyone else has made some very good points but I just want to mention that it all seems to be about order-book style trading although there are liquidity-pool systems that dont need a buyer and seller and instead it operates by liquidity ratios and those who put liquidity in get returns from trading fees and stuff
Wow, you just figured that out, huh? 😂 Good luck out there pal
If I buy a stock today for $1, sell it tomorrow to a dude for $2, then he sells it to someone else for $4 in a week, we all make money. It’s the happy ponzi scheme of line goes up. Or inflation. Whatever sounds better.
Latest Answers