When a stock price goes down, is it that many people have sold and now have that value in cash OR is it that the market just decides the stock price is now worth less collectively?

Question

When a stock price goes down, is it that many people have sold and now have that value in cash OR is it that the market just decides the stock price is now worth less collectively?

In: 103

Answer 1

A stock’s “price” is basically the lowest price that people are willing to sell it for. Imagine a stock is selling for $50, many people want it, and someone tries selling it for $40. It sells immediately, and the lowest price remains $50. Now imagine no one wants it, you go to sell it for $45, and still no one buys it. This causes the price to go down to $45. Generally speaking, a stock price going down means more people want to sell it than want to buy it.