How do you lose money from a stock you invested in the stock market?

How do you know how much you will lose? For example if I buy a stock for one dollar, is it possible that I will have to owe money if the value of that stock decreases? How does one make or lose money from buying a stock? I want to know to understand all the risks involved.|||A stock is a minuscule portion of company ownership. If you buy 100 shares of a company that has issued 100,000,000 shares then you own .00001% of the company. Lets say you purchased these shares at $1 a share. At $1 a share, the companies total market value would be $100,000,000 (based on the number of shares).





If the value of the company increased to $150,000,000 based on positive earning, an innovative product etc then the value of your stock would be $1.50 a share or $150 total. If you sold the stock at that price you would make the difference between the price you bought the stock and the price you sold the stock at ($0.50 a share) minus a comission for the trade.





On the other hand if the company value reduced to $50,000,000 your share value would drop to $0.50 a share. You haven't actually lost any money until you sell your stock. It is possible that the stock will recover or even go higher.





Your total risk is no greater than 100% of your total investment. You won't owe more than you have put in.





For more information on the basics of the stock market read my blog. It is targeted to smart folks like yourself that want to improve their financial health and quality of life through informed participation in the stock market. No spam, no get rich quick schemes. Just good information delivered in a simple but unpatronizing way.





http://familymanfinance.blogspot.com/201鈥?/a>|||If you buy a stock for 1 dollar, you own a share in that company. The $1 is your investment in that company.





If the share price of the company goes up, you will gain on your investment, e.g. your $1 could become $1.50. However, if the stock price falls, you will lose on your investment of $1. You only stand to lose as much as you invest in the stock.





Regarding risks, buying some stocks are riskier than others. For example, blue-chip stocks are stocks of established companies such as Coca-Cola, IBM have a steady rate of return and thus they are less risky but you may not make huge gains if the prices are steady.





However, other stocks are more risky, e.g. technology stocks which often see much more dramatic jumps in prices. This means that the gains are potentially much greater, whereas so are the losses.





A good website is Investopedia, where you can trade virtual capital over a simulator before doing it for real (see link below).|||Hi Thomas,





The most important question that you asked was "How do you know how much you will lose?". THAT is the key to being a professional trader, since they always ask the question "How much can I possibly lose?". This is something that you must control in order to begin your success and can be done in a variety of ways utilising various instruments available - be that options or stock investing directly.





A great rule that I've learned in the past is to never risk more than 2% of your available funds in any one trade (some people even prefer 1% as a trigger). For example, if you have a $10,000 account, then you must never risk any more than $200 in any one trade (i.e.: 2%). You can do this effectively with specific options strategies and also with a strategy known as "position sizing", which is where you calculate BEFORE ENTERING THE TRADE the level at which you will exit your trade if the price falls to that point when buying stock. It all comes down to having a plan before entering a trade and STICKING TO THE PLAN diligently.





Be sure to have a read of Van Tharp's book titled "Trade Your Way to Financial Freedom", since he describes this process extremely well and in very clear, easy to understand language.|||People buy and sell stocks to make money. If you buy a stock for 1 dollar, the value of that stock can go up or down, depending on how well the business is doing and some other factors. If the value goes up to say, $1.50, then you can immediately sell that stock for a profit of 50 cents! Or you can wait and hope it goes higher.. and then sell it for more if it goes up. However if it drops to 75 cents, you may want to sell it immediately before it drops any lower.. but you lose 25 cents. But possibly save more money if it crashed.. then you'd lose all the 1 dollar you invested! (oh no!) The whole point of stock investing is to buy low, and sell high (or higher than you bought it for) to make a profit. (It sounds easier than it is, and there's a lot of gamble involved. Don't start investing in the stock market unless you can afford to lose a few thousand.)|||Your stock price COULD go down to zero and that's it, so you could losse all your money (but no more liability).


You can lose money on paper: You buy at $1 and the price goes down to 50 cents (on paper you have lost 50%, your investment is worth 1/2 what you paid). However if you don't sell and it goes back up to $1 or even over youcould be making a profit on paper.


You can lose money in reality. If your $1 goes down to 50 cents and you sell it, thinking it might go lower you ACTUALLY lose half your money.|||Great question. It's the "mark" of a professional to ask what the risks are. The amateur always asks "How much can I make?". You could be on the road to be a professional.





READ:


Stock Investing For Dummies





After this book.... if your interested..... there's many more!