How, in simple terms, would a stock market “crash”?

downtowngurlwriter: How, in simple terms, would a stock market “crash”?

Answers and Views:

Answer by mnyquist
Basically, it’s when people get nervous and start selling their stocks. If everyone starts selling stock, banks have to pay out; and banks dont have all of the money stored in them at any given time. Most of it is electronic. So, if all the funds start getting transfered out, the banks run out of cash, and then people cant get any money. This spirals downward, reducing faith in banks.

Answer by kurticus1024
its like when everybody takes loans and buys stock, then everybody loses confidence and wants to sell, all at the same time, nobody wants to buy, all at the same time

it just tanks then, goes down really low

its not good then

Answer by John s
What causes the stock market to fail is a mass sell off of stocks across the board. Not just one company’s stocks all the different companies’ stocks because the investor are scared the value of the stocks with drop real low in value.

In simpler terms. stocks are property people who own stocks in a company own part of the company. A lot of people called investors own stocks in more than one company. The big investors such as retirement funds own stocks in a lot of stocks in a lot of companies.

For some reason they all get scared about the value of their stocks all that the same time and rush to sell them. When that happens the value of the stocks fall dastically from what they were worth. That is a crash!
Example in one crash the value of GM stock flew from $ 55 to less that $ 5 dollars. General Electric’s stock fell from $ 64 dollars to less than ten dollars. before they could close the market and stop the sell off.

It is like everybody in the country getting scared that the value of their house is going down too much and every body in the country tries to sell their houses at the same time. If that happens houses would be worth to next to nothing. Houses worth 1,000,000 dollars the day before would be worth less than 100,000 dollars.

Crashes rarely happen nodays because if it starts happening they will close the stock market to prevent it.

Hope that helps you.

Answer by iansand9876
Although there are often strong and logical underpinnings to a stock market at times the mere fact of everyone apparently making extraordinary profits generate a frenzy that takes the market into areas beyond any logical economic underpinning. At those times the mere existence of a stock is enough to make people buy it. We have what is called a boom.

Inevitably booms bust. The trigger may be government policy, or some independent event. When that happens there is no market and the value of stocks plummets.

Booms and busts have been part of the stock market from the South Sea Bubble in the 17th century through the Great Depression and the Tech Wreck (and many others on the way. The folk wisdom is that when everyone is buying it is time to sell.

Answer by Wolfie
People bought too much stock, often borrowing money to buy even more stock. This in turn drove the prices up. News media contributed in some cases both ways, finally resulting in the feeling that the prices had hit their highest point.

People then slowly and ever more rapidly began selling stock to recover their assets, and just like lemmings jumping off a cliff, they all tried to pull everything out all at once.

On October 24th, 1929… that ‘day’ was remembered as ‘Black Thursday’…. and was essentially the beginning of the ‘Great Depression’. It struck the entire world, not just the USA, since the financial markets are more closely linked than you might imagine.

Black Tuesday was the single worst day for the Dow Jones Industrial average as the effects of Black Thursday only kept getting worse and worse…. By this point, bankers and the major stock brokers were desperately trying to inject some confidence in the market to prevent what they KNEW was going to be rough times…. even they did not realize how bad it was going to get….