FXTM information and reviews
FXTM
95%
OctaFX information and reviews
OctaFX
94%
XM information and reviews
XM
93%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
91%
HFM information and reviews
HFM
89%

Can A Stock Go Negative?


There are numerous professional stock traders who have made a name for themselves in the dynamic stock market. However, it is essential to keep in mind that the stock market is also prone to numerous factors that influence stock prices, which makes traders wonder, can a stock go negative? The simple answer is, no.

Even if stock prices fluctuate or fall drastically, they can never attain a negative value (less than zero). While stock values cannot attain a negative value, book values can go negative. This means that investors can lose more than the capital invested and even end up in debt. This typically happens when companies go bankrupt.

If a company lacks funds to pay off its creditors, stockholders earn zero compensation, and their stock may become worthless. In some cases, investors end up losing their entire investment.

However, stock prices rarely fall to zero even when companies go bankrupt, because the stocks still retain some value. Low-trading shares are typically delisted by stock exchanges before prices get to near-zero levels.

Can losses exceed your investment?

Going short or trading on margin exposes you to high risk and you can easily lose more than your entire investment. For example, with short selling, you can lose money when stocks appreciate. When trading on margin, traders buy stocks using money borrowed from brokers to increase their capital size and leverage their trades. Therefore, losses will be multiplied by the leverage and you can lose your own money.

When going short, you can lose more money than you had invested if you go short on a stock and it unexpectedly appreciates by more than 100%. This typically happens when investors take short positions on stocks from companies that are performing poorly. Short selling relies on the premise that prices will fall. Therefore, if stock prices rise, you may end up losing more money than you had invested because you have to repay what you’d borrowed.

Factors that determine the value of stocks

A company’s earnings, supply and demand, and investor perception can all influence the prices of stocks. When a company has turned consistent profits in previous years, investors have a positive perception towards it and the stock can be in demand driving up stock prices. However, if investors perceive the stock value to be low, prices can fall.

When the number of investors looking to buy a particular stock is higher than those looking to sell, stock prices rise, and vice versa. The company’s earning is also a major factor that affects a company’s value. If a company turns in profits consistently, it has a positive future outlook and shares can appreciate. However, if profits fall short, share prices drop.

The bottom-line

There are several ways to protect yourself from losing more money than your initial investment. However, it can still happen because markets are unpredictable.You can protect your investment from the impact of negative price movements by using stop loss orders and diversifying your portfolio. It is essential to keep in mind that stock prices can fluctuate drastically and sometimes it is impossible to predict the price movement as well as the optimal time to sell or buy. However, even during the most volatile price fluctuations, stocks cannot go negative.

#source

Share: Tweet this or Share on Facebook


Related

What is Algorithmic Trading?
What is Algorithmic Trading?

Algorithmic trading (also called automated trading, black-box trading, or algo-trading) uses a computer program that follows an algorithm (a defined set of instructions) to place a trade...

The Most Popular Myths About Bitcoin Debunked
The Most Popular Myths About Bitcoin Debunked

During the existence of bitcoin and other cryptocurrencies, a large number of erroneous judgments have appeared about them, which continue to spread among people even now...

Four Ways to Use Your Red Envelope Money as a Trader
Four Ways to Use Your Red Envelope Money as a Trader

Lunar New Year is a major historical and cultural festival celebrated by millions of people around the world, particularly the Chinese, Vietnamese, and Korean communities...

What do alpha and beta mean in investing?
What do alpha and beta mean in investing?

Alpha and beta are indicators for evaluating the effectiveness of investments. Alpha measures the performance of an asset or a portfolio relative to the market...

What is a Bear Market? A Complete Guide
What is a Bear Market? A Complete Guide

Sometimes, during market cycles, the stock markets may plunge, and prices could fall. It may be for a short period of weeks or months, or even drag on for years...

What is Forex VPS and What Is It For
What is Forex VPS and What Is It For

The trading conditions in which modern traders work have changed dramatically over the past 10-15 years. Today, a trader's computer and trading terminal are able to work miracles...

FXCM information and reviews
FXCM
87%
ActivTrades information and reviews
ActivTrades
86%
RoboForex information and reviews
RoboForex
85%
MultiBank Group information and reviews
MultiBank Group
84%
Libertex information and reviews
Libertex
83%
Vantage information and reviews
Vantage
83%

© 2006-2023 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.