These days we are hearing more and more the terms stock market crash, but what does that really mean? A stock market crash is caused when there is a very sudden and dramatic decrease in the stock prices across a particular section of the stock market. The result being that a significant loss of what is called paper wealth. Paper wealth means the wealth that is measure in monetary value in the prices of assets and how much money your assets can be sold for. The Stock Market Crashes are pretty much driven and run on panic as much as it does on the prices of stock. Crashes are said to follow what they call a speculative stock market bubble.
Stock Market Crashes are what experts call a social phenomena and this is where the outside economic events do mix together with both a crowd mentality and psychology in a positive feedback lop that happens with the selling by some stock market investors and they will bring in more people who want to sell their shares. A stock market crash can only happen under these factors:
Basically there really isn't a specific reason why the market crashes but the term crash can be associated with the deep double-digit percentage losses that occur in the stock market index. The very fist Wall Street Crash was in 1929, Stocks started falling and prices started to drop. Black Tuesday the Dow fill 38 points to 260, which is a drop of about 12%. The amount of selling that started to happen contributed to the crash. People were liquidating their stocks because of margin calls and investors who were in over their heads started to flood the market with the selling of their stock.
By the end of November 1929, the stock market index stood at 228, which is a cumulative drop of about 40 percent from the high of September. The markets started to make a comeback but that lead to a false sense of recovery and investors lost even more money. In the year of 2008 to 2009, Wall Street had yet another crash, this time it was caused mainly by exposure of securities of sub prime loans and credit default swaps, these were loans were said to be insured and soon a global crisis that resulted in many bank failures in Europe and bailouts in the United States.
The stock market is a very fragile thing, when it is doing well everyone is happy and buying and selling stock with a smile on their face. The second some prices start to fall then everyone panics and they start selling off their stocks and this causes a crash of sorts. The market is full of risk and reward you have to play it safe and don't follow the crowd when they panic and start to lose money, it doesn't mean that you will too.