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Loss in Stocks - Who robbed my money?

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Ever wonder where your money goes when the stock prices goes down? We rarely think about this because our mind is focus mainly on how much our loss is (as well as the sleepless nights we spent thinking about the loss hehe). Several questions come into mind. Does the company lose too? Does the money just disappear?

The stock market prices go up and down depending on several factors. I found an interesting article about how the money circulates upon buying and selling of stocks.

Let’s see how the following (fictional) story goes:

Introduction:

Three friends Joy, Juan, and Jose started investing in the stock market. They have 500 pesos each. Luckily, Globe has offered 1 share for 100 pesos (yayyy).

1^st transaction: Joy bought 1 share from Globe at 100 pesos.

Joy is excited to buy her first share from Globe. Joy tells her friends Juan and Jose.

2^nd transaction: Joy sells the 1 share to Juan for 250 pesos

Joy is lucky and sees that Globe stock prices went up to 250 pesos. She sold it to her friend Juan.

	Money	Shares
Globe	100	0
Joy	400+250=650	1-1=0
Juan	500-250=250	0+1=1
Jose	500	0
Total	1,500	1

3^rd transaction: Juan sells the 1 share to Jose for 50 pesos

Unfortunately, Globe stock prices went down to 50 pesos after Juan bought it. Feeling that he could lose more, he sold it at 50 pesos to Jose. Jose now has 1 share he bought at 50 pesos.

	Money	Shares
Globe	100	0
Joy	650	0
Juan	250+50=300	1-1=0
Jose	500-50=450	0+1=1
Total	1,500	1

Final assessment:

Globe and Joy gained 100 and 150 pesos respectively. However, Juan and Jose lost 200 and 50 pesos respectively. A total of 250 pesos was gained by both Globe and Joy and a total also of 250 pesos was lost by both Juan and Jose. So there you go. Every loss one makes in the stock market means a gain for another some other lucky guy.

	Money	Shares
Globe	Gain 100	Loss 1
Joy	Gain 150	0
Juan	Loss 200	0
Jose	Loss 50	Gain 1
Total	1,500	1

So did the Globe company lose any money while Juan and Jose lost money?! Actually no because they still held the 100 pesos they originally sold their 1 share. Globe could actually gain by buying back the 1 share at a cheaper price of 50 pesos.

So did money disappear magically?! No money actually disappears as the total money is 1,500 pesos throughout the whole story. It just moves from one person to another as we buy and sell stocks.

Hope this clears things up ^_^.

If you want to know if they are still friends after Joy gained money whereas Juan and Jose lost money, well in the end they realize that their friendship is more important (haha alright this is a corny ending I admit).

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