When I am buy stock at a lower price point than it was trading a 1 day or week, month or year later, does it mean that somebody during that same time frame is losing the difference?
In: Economics
Good question and I will expand on this. To answer your question directly no, unless I buy a share yesterday and sell it today no one lost money in that transaction. When there is a transaction there is always a buyer and a seller, if a stock is trading at $100 yesterday and $95 today that just means that someone who bought yesterday has what we call a $5 “unrealized loss”, if they were to sell it they would lose $5 and their brokerage will show they lost $5. If they wanted to buy the 1 share today they could have saved $5 of cash, which is losing the potential to make more money, but regardless the person still has 1 share of company stock. For example, say you bought any product from a store, you go there the next day and the same product is 5% off, you didn’t lose money, you just missed the opportunity to buy it cheaper.
To answer the question in your title: in order for someone to make money in the stock market does someone else needs to lose money: the simple answer is yes, the complicated answer is yes but that’s ok. Take for example a company goes public and issues shares of stock at $10 each, person A buys the offer for $10, sells it to person B for $20, who sells it to person C for $30 who plans on holding the shares forever. Many years pass and the share is now worth $60/share. We know A made $10, B made $10, and C has an unrealized gain of $30, so who lost money that C has this gain and A and B have cash in their pocket? The answer is the company, they received $10 for the share and now if they want to sell the company, pay a dividend, or do a share buyback they need to buy C out at $60. I can promise you that the company does not care, because if the company’s value increased by 6x that means that they made good investments with that $10 whether its new machinery, a new plant, or something else.
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