Example: if I bought $100 share of ABC company and tomorrow it’s $90, I get that I would incur a $10 loss if I tried to sell it, but I don’t understand what happens to the $10 difference ABC company still has from me.
Edit: okay so in this scenario:
1. i bought the share from the issuer
2. there is a downturn and the s&p index is down by 3,000 points
The first people to hear that the market is about to drop went ahead and cashed out their $100 share back from abc, however I was not lucky and my share is now worth $90. Wouldn’t ABC company have my $10? All the companies listed on the index, they get to keep the difference of the value of what the share was yesterday vs. today. Sure, the equity part of ABC company got smaller, but they still keep the $10 difference should everyone come back and cash out their shares?
In: Other
The 100$ price is speculative. The asset in stocks is the share, not the value of the share.
Shares of stock represent partial ownership of the company that were sold to raise capital for the company at its IPO. Whether the company has value depends on its success at generating revenue. The value of the stock depends on the potential of the company to stay or become more profitable in the future.
The price of a share is an arbitrary number determined in three possible ways. At an IPO the price is fixed and anyone can buy shares at that price until they are all sold. Once on the market, buyers and sellers place orders where the sellers offer however many shares at a particular price and buyers offer to buy them at a lower price. If sellers are having difficulty finding buyers they might drop the price, they might also compete with other sellers with marginal price changes to be in front of them on the listing, and vice versa for buyers: so the price is determined by supply and demand. Finally the exchanges that facilitate these trades operate their own traders called market makers who, in theory help improve the function of the market.
For example, let’s say dum-dum Mcgee lists a buy order for 10 shares of X at 10$, but a seller is already selling 100 shares at 9$, the market maker would buy the shares from the seller and fulfill dum-dums order (and possibly pocket the differance). The market makers take a number of actions to help orders move along with goal of smoothing out changes in price and reducing fluctuations. In the GME nonsense this took the form of issuing IOU shares where the market makers sold shares they didn’t have with the intent to buy them when they became available. Except, they didn’t become available so they ended up selling 170% of shares that actually existed which is allowed for some reason?
Ultimately the price is determined by the previous price and the change in the ratio of buyers and sellers.
If the price drops from 100 to 90, that means that more sellers entered the market and beat the price of existing sellers, and didn’t immediately find buyers at 100$.
Where did that money go? It didn’t, you still have the share. Go to a shareholder meeting and demand a dividend or something. Vote for board members who won’t drive the company into the ground. Ineffectually argue with customer service people they should do what you want because you are technically the CEOs boss. There are any number of wonderful benefits of owning stock besides the resale value.
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