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?

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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?

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The market decides what it’s worth. If the market capitalization of a company goes down a Billion dollars that money just dissappears.

Both. Stock prices are reports on the most recent sale of actual shares, so at least two somebodies have decided that the lower price is where they are willing to buy and sell the stock. But that new valuation also affects all the shares that are held but haven’t been traded, as unrealized loses.

Both. When you say “the market just decides”, “the market” is “many people” and “just deciding” is based on what they are selling/buying for.

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It’s closer to the latter of the two, but it’s both.

The key thing to understand is that when you see a stock quote or stock price, that is *the price at which shares changed hands most recently.* In other words, a few seconds ago someone sold a few shares to someone else at that price.

Importantly, a stock quote is *not an offer to buy or sell at that price.* So if you see a stock quote and you go sell your shares at “market price”, you will get slightly higher or lower than the quote based on various factors. (The “bid” and “ask” prices in the quote are the current offers to buy and sell, respectively.)

A stock going down means that there are more sellers than buyers, “the market” is collectively pessimistic about the stock’s value, and so the sellers are dropping their “ask” prices to get the few buyers to bite. Each successive trade is for a slightly lower price than the one before. This continues until the price hits a level where potential buyers start getting more excited and jumping in.