When Market Crashes Where Does the Money Go? | How Stock Market Works?

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Where Does the Money Go When u Invest or When the Market Crashes? | Basics of Stock Market Investing in Tamil | Finance Boosan

When You Invest in Stocks:

- Initial Public Offering (IPO):

When a company first goes public through an IPO, investors buy shares directly from the company. The money raised from selling these shares goes to the company. This capital can be used for various purposes like expanding operations, research and development, paying off debt, or other business activities.

Secondary Market Trading:

After the IPO, the trading of stocks takes place in the secondary market (e.g., NSE, BSE). When you buy shares here, you are purchasing them from another investor, not from the company. The money you spend goes to the seller of the shares, not to the company itself.
During Market Crashes:
Market Value Decline:

When the market crashes, the value of stocks declines. However, this does not mean that the money "disappears" in a literal sense. Rather, the perceived market value of the stocks has decreased. The money was exchanged at the time of transaction and is now held by someone else who may have sold their shares before the crash or at a lower price.
For example, if you buy a stock for ₹100 and its value drops to ₹50, you’ve lost ₹50 in market value, but the money you originally invested is now with the person who sold you the stock.

Paper Losses vs. Realized Losses:

A market crash often results in "paper losses," which means the value of your investment has dropped on paper. These losses are not realized until you actually sell the stock at a lower price. If you hold onto your stocks and the market recovers, you might not lose any money at all.

Benefits for the Company:
Even though companies don’t receive money from secondary market trades, they still benefit from being publicly traded:

Market Capitalization and Valuation:

The company's stock price affects its market capitalization, which is the total value of all its shares. A higher market capitalization can enhance the company’s reputation and market position.

Equity as Currency:

Companies can use their equity (shares) as currency for acquisitions, mergers, or as part of compensation packages for employees, especially executives.

Future Fundraising:

A strong stock price and market presence can make it easier for the company to raise additional funds in the future through secondary offerings or issuing new shares.

Debt Financing:

A healthy stock market performance can lead to better credit ratings and lower interest rates when the company seeks debt financing.

Summary:

When you invest in the NSE or BSE, money primarily flows between investors, except during IPOs or new share offerings.

During market crashes, money doesn’t disappear; instead, the market value of investments drops, leading to potential losses for investors.

Companies benefit from stock market presence through increased valuation, enhanced ability to use equity, easier fundraising, and better financing terms.

Understanding these mechanisms helps clarify the flow of money and the indirect benefits companies receive from being publicly traded on the NSE and BSE.

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[finance.boosan]

Get 15% off with the code "J15D"!
Limited time offer on a first-come, first-served basis.

[cybrainx]

I think you got wrong idea of Outstanding shares.. IPO is major fundraising event where a portion (not full) of the company will be made available as shares available to public. This is called Float. Outstanding shares is the total number of shares including float and insider/employee/vc holding.

[familystreamer]

Need more clarity bro. Onnumae puriyallae

[robertsantiago]

Good to see the professional quality video setup & background 👌👍

[Lingesh.]

Bro I started with zero knowledge in investment ideas but you real teach all the subscribers like a teacher thank you so much brother. ❤

[Gopika]

Hi Boosan, your clarification is very much useful and keep rocking further.

[misscool]

romba thanks bro iniku ithe doubt vanthuchy neenga atha clear paniteenga

[srinaga]

Thanks for clarifying the basic doubts

[BalajiViswanathan-ggie]

Thank you for this Video. I have doubt for this for long time. You clarified me with simple way.

[wonderworld]

Super anna, naa romba naal ahh ithu puriyama thaan irunthan inaiku than puriyuthu.Good content❤

[daspragmatic]

simple but powerful information boosan

[clloydwalton]

Super setup and quality content. Keep it up bro.

[marvelking]

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[selvamk]

You nailed it to perfection...keep post videos like this 😊

[RaghuRathinam]

i was surprised with this video. just had this question(how does the company get money invested from stock steadily if it price chart is not steady) in mind and tried to search online about it. you killed it. #mindreader

[kartheeswaransomasundaram]

Hi Boosan, Cristal clear explanation 👌👌👏❤️...

[priyankaganesan]

Thankful ❤ I toke my phone to search the exact content. your video came at first with course.

[sarathss]

Crsip and clear Explanation...very informative thanks for the content

[senthilnathanc]

Neenga romba talent person, your content very useful and simple

[amittallimani]

This was very helpful to understand how stock market works! Good effort kudos to you!!❤