Stock Market Crash

We often hear in news and read in the newspapers about crashing of the stock market, but many of us are not sure of what it means. The term Stock Market Crash is used when the index of the stock market looses large number of points in a single day, and mostly all shares participating in it. As soon as the stock market crashes, stock prices of mostly all companies listed drops down drastically. When the market loses around 1 to 2 % of its closed level (previously) its not know to be a Stock Market Crash, on other hand, when the index of the stock market loses around 5-10% it is usually said to have crashed. Crashing of the stock market have given great investment opportunities to the people and lots of them have gained around thousand of dollars because of the market crash. The most common question in minds of most of the people is the reason for the crash of stock markets all over the globe. Few reasons are discussed below.

Huge Frauds: There are several types of frauds that are linked with the market. Minor or small frauds do not lead to crashing of the stock market, only major frauds that occur results in crashing of the market. Sometimes due to heavy selling the stock market crashes. When all stockholders begin to sell their shares the index of the stock market drops down heavily and results is Stock Market Crash.

Toppling of Government: Sometimes, when the government of the country falls, most affected market is the stock market, which immediately reacts to any type of change. The market falls greatly and sometimes crashes as well.

Budget Announcement: When the government announces the budget of the coming financial year, and the policies that are announced are not helping in the development of the industries, stock market reacts very heavily to it and many times crashes.

Investment by Foreign Companies: Everyone knows that foreign companies invest a lot in the stocks of the listed stock exchange companies. When these companies sell heavily the stock market crashes. There are many reasons for these foreign companies to sell so heavily; it maybe due to political instability or they may find better prospects elsewhere.

Other reasons for crashing of the stock market are; death of any famous politician; contemporary stock market crashing; famous business and corporate houses losing on their number monthly or annually. Likewise, there may be lots of reasons that are responsible for crashing of the stock market. Reason be anything, it is a known fact that whenever the market crashes listed companies prices will fall down drastically. 

In the year 1929, the stock market crashed tremendously. This major downfall in the stock market still scares the national economy. It resulted in a major depression in the 1930’s. This depression went on for almost 10 long years are had an affect on industrialization as well as non-industrializations and on many part of the globe. It is very important for us to know the basics and facts of the stock market before we think of investing in it.