What Is Crash in Stock Market

Crash in stock markets is sudden decline in the stock prices driven by market psychology and economic events. Strange are the ways of financial market. Best time to buy the stocks is when everyone is selling and appropriate time to sell the stocks is when everyone is buying.

This generally happens when few market participants sell their stocks which drive others to sell their stocks as well. As a result of such panic selling there is abrupt and sharp decline in the stock prices which ultimately leads to stock market crash.

Selling of stocks takes place when the stock market is weak and the participants are pessimistic. At this point of time the market is said to be undervalued. The investors generally the corporate insiders, hedgers and other such traders now buy the stocks at bargain with the intention to sell them at higher prices in future.

Due to such accumulation of the stocks, the prices rise. The mutual funds also contribute to the increase in the stock prices. They are the powerful motivators which accelerate the stock prices. In such conditions the stocks Indies show an upward trend. With a substantial gain, the prices can move no further.

At this point the retail investors enter the market. They enter the market with the sole purpose of making money. Such investors take their decisions on the basis of the news and reviews in the newspapers, financial magazines and other similar source of information. these investors are driven by the market sentiments and economic events happening around the world.

As more and more retail investors enter the market, more money flows in and companies are encouraged to launch more IPOs.

This is the time when the stocks are considered overvalued. The market specialists now sell the stocks to the retail investors. This is also the time when most of the scams take place in the market. Now no more money can flow in. the market is now supersaturated. Just a small news of scam and the market precipitates.

The investors start selling their stocks as soon as the news of any market scam arrives. Few sellers drive others to sell their stocks. There is panic in the market and everyone just wants to sell.

At this moment some retail investors hold their stock. They still hope that they will make money. But as the prices continue to fall they too sell their stock which chops the market further. As no one is willing to buy now, the stock prices fall rapidly. The market thus crash under its own weight.