People buy low and sell high, right?
Now people are selling at whatever they can get and then when the price goes lower than what they sold it for they buy it back again (I think).
So where does all of the money go when people just sell and wait for the stocks to go back up again?
It’s not cash anyway, right? It’s just numbers on paper … transferred to what safe area, banks, gold, or something they can get back into the stock market game again really quick?
The money goes into your brokerage account. From there, you can leave it in the account or you can transfer it to your banking (checking/savings) account. At that point, it goes wherever the rest of your money goes. Bills, probably.
If you bought a stock at $10, and the price went up to $40, you had an asset apparently worth 300% more than what you had before, but you haven’t “realized” your gain until you sell it at $40. So if the price drops back to $10 you haven’t really lost anything (though you can still be in trouble, if, for example, you took out a loan with the $40 as collateral). But if the price drops to $9, you’ve really lost $1, and the guy who has that dollar is the one who sold you the stock at $10.
Park it in a money market fund? Up to you.
What your broker does with money just sitting in your brokerage account will vary. They will probably use it in some way to make investments into a mutual fund or something in order to make money off your money that is just sitting there. You will earn a tiny percentage for this. It’s tiny, but slightly better than a savings account. So, you can leave your money in that account where it earns a tiny bit of interest, or you can transfer the money back to your bank account where you can use it. If you decide to leave it there, then it will be ready for you whenever you decide to buy stocks again.
Brokerage account???
Is this because it is tax free till it is a profit?
Regular people can’t buy and sell stocks themselves, they have to go through a brokerage.
And yes, the value of your holdings can grow tax free until you sell it, at which time you’re liable for capital gains taxes (in some but not all cases).
Got it in one. It typically takes a few days to settle the transaction, meaning you may have sold the stock on Monday but you don’t have the money until Thursday. Once the trade is settled the money is in your brokerage account to either buy something else or as Bear Nenno said you can transfer to anywhere you want. In my case, my brokerage account is essentially a checking account and I can write checks to myself against any cash that happens to be sitting there. Brokerages pay very little if any interest on the cash in your account so it doesn’t usually make a lot of sense to leave a pile of money sitting in a brokerage account not working for you.
Well, if your broker keeps your money in his mattress, you should probably look for a different stockbroker.
Just in case you’re planning on jumping into the action, understand that this is a lot harder than it sounds. It is especially difficult for someone who is unable to trade while the market is closed. Your stock could change 20% or more overnight. You might sell it at its lowest point, and then it takes off again never falling lower than you sold it. So then you try to buy it again (now for more than you sold it earlier) and then once you buy it, it tanks again. But then, if you decided to not buy it, maybe it continues to rise and you miss out on a potentially huge gain.
If it were as easy as it sounds, literally everyone would be doing it. Just FYI. It’s a little easier when there is a HUGE crash like right now. But even then, it’s still not a guarantee; especially if your unrealized gains were not great enough to keep you in the black after the drop to begin with.
It’s a mistake to think that people all buy low and sell high. That’s what everyone would like to do, but not everyone can. Every time someone buys low, someone else sells low, and every time someone sells high, someone else buys high. The people who end up buying high and selling low lose money, and it goes to the people who end up buying low and selling high.
Parts are cash, parts aren’t.
So let’s say you have $50 in your hands. You decide to invest it in stock. So you buy 25 shares of a company whose stock is valued at $2 per share.
In theory, you could have 25 nifty little certificates saying you own one share each of that company’s stock, but it’s all electronic these days. At any rate, you own 25 ownership shares in the company entitling you to vote for board members, get paid dividends (if the company pays dividends), etc… All the stuff owners of companies get to do, except at the scale of your ownership stake relative to all the shares of stock that the company has issued. Meanwhile, the guy you bought them from has your $50 in his pocket.
All the time you hold onto the ownership shares, the price that they sell at fluctuates based on how many are being bought/sold at that time, which is usually governed by things like the company’s press releases, financial performance, publicity, the state of the industry that the company is in, etc… That price is the “value”- if it goes up, and you sell, you make money. If it goes down,* and you sell,* then you lose money. But if you don’t sell, that value is just theoretical; it goes up and down, while you still actually own the shares. It’s the price you could sell them at that changes. In general, the big idea is to buy low/sell high over time by investing in companies that do well in hopes that other people will see that too and want to buy their stocks as well because they’re expected to perform well over time.
So some time passes, and you decide to sell. You sell your stock when it’s trading at $2.05 a share, giving you a total of $51.25- you made $1.25 on your sale. And you have your original $50 back. Same thing if the stock lost value; you’ll get back less than $50. And in either case, you have money, and the other guy has the ownership shares.
That’s not necessarily true all the time. Suppose Alice buys some FooCorp stock at $10 a share. Then it goes up to $15 so she sells it and Bob buys it. Then it goes up to $20 so Bob sells it and Carla buys it. Then FooCorp goes bankrupt. The only loser in this chain of transactions is Carla. Alice and Bob still made money.
My Roth is now worth almost twenty thousand dollars less than it was two years ago. It’s value is less, my total net worth is less. The money, (if I sold the stocks) would go to me. The money goes to the seller, the stock goes to the buyer. The value of the stock changes. (the value of the money, too, but that’s a whole different market.) The difference in the value doesn’t go to any one. Buyer pays all the money, seller gets all the money. The broker takes some of it from each of them, no matter who made or lost profit. If you buy a cow, you don’t get any money, you get a cow. If you sell a cow, you don’t get any cow, you get money. The livestock profit is the difference in price between when you bought and sold it, minus how much you had to pay to feed the cow, or the Broker.
The actual value of any item is only set when the item changes owners.
You may think your house is worth a million dollars, and it may be assessed and taxed for that amount, but it is really only worth a million when someone else gives you that.
Until the item changes hands, it might be worth a million, maybe two million, maybe 300k. Only maters when the item changes ownership. Keep your stocks and hang on.
If Bob places a simple limit order to sell at $20, then he is supposed to get at least $20 and not some mystery low price. Of course, there is no guarantee anybody is going to buy the stock at $20, or buy all the shares he is trying to get rid of. Now, on the other hand, if he tries to sell at the market price, then he gets what the market thinks it is worth.
Your investment is the amount you use to buy the stock. As mentioned, you do that thru a brokerage account (sorta like a bank account, used to buy/sell stocks). When you sell the stock, whatever it’s value is put back in your brokerage account (more, or less, than what you bought it for).
You only gain or lose money on the investment when you sell the stock.
It may be easier to understand where the money goes if you replace stocks with something tangible, like a car.
Jack buys a car for $20,000 from his neighbor. He keeps it for a few years and it depreciates in value. He sells it for $14,000. He wants to buy it back in a few years if it becomes a collector’s item and its value starts going up. Where did the money go?
Most cash is “numbers on paper” (or a database). Specifically, they are just entries in an accounting ledger. There are no “Scrooge McDuck” vaults full of physical paper money and gold coins backing every financial transaction.
I don’t think this is true. The guy who sold you the stock for ten dollars has all ten dollars from you. The price it went up or down to after he sold it is irrelevant as far as he is concerned.
If the guy who sold you the stock for ten dollars originally bought it for nine dollars, he made a one dollar profit. If he originally bought it for eleven dollars, he had a one dollar loss.