Basics of Stock Market - Beginner

What is a stock-market crash?

Stock market crashes occur when the stock index falls sharply within a few trading days. Market volatility is part of the market. The prices of equities as well as broader indices fluctuate, resulting in turbulent fluctuations over the long-term and short-term. When indices suffer a rapid, double-digit drop, it is called a stock market crash. There is no precise decline percentage that can define a stock market collapse today, unlike bear market or bull market.

What causes a market crash?

A stock market crash usually occurs when the economy has been overheated, inflation is rising, market speculation is high, and there is uncertainty about the future direction of the economy. These factors are why the stock market crash can often start as a trickle but end up as a catastrophe as investors seek out an exit or quick exit option. It can happen in many ways due to the powerful interaction between bull market, bear markets, and stock market bubble.

  • Bull market:

    This happens when investors are optimistic about the economy and market. It also occurs when there is more demand than supply, which results in an increase in share price. This can last between 2-9 years. It takes only a major market event to cause a crisis of confidence and draw more sellers into the market.
  • Bear Market

    This happens often after a stock market crash. Investors become pessimistic, and they sell their shares. This causes a drop in prices because of the fact that supply is outpacing demand. A bear market is when the stock market loses 20% in 52 weeks. It usually lasts about 4 years.
  • Stock Market Bubble

    Investors who act in a herd mentality and buy stocks in groups that result in unrealistically high market values explode this phenomenon.

Stock market crash effects:

A stock crash could lead to a bearish market. If the market falls more than 10 percent after a correction, it can lead to a bear market. A stock market crash could lead to recession. If stock prices drop dramatically, corporations will have less capacity to grow and could end up insolvent. In the end, a drop in demand leads to lower revenue which causes more workers to lose their jobs. This in turn causes the economy to contract and eventually lead to recession.

What should you do after and during a stock market crash

You only need to know your market exposure and determine if you are a high-leveraged margin investor. You should also assess whether your portfolio is too heavy with risky growth stocks or more speculative shares. With the assistance of stock market professionals, gather all the information you can about your portfolio.

  • After researching good stocks, adjust accordingly
  • Diversifying your portfolio can spread your risk.
  • Buy when other people sell
  • Keep calm, as bear markets tend not to evaporate quickly and bull market last much longer

Stock market crash 2019

Sensex lost 793 points. These are the main causes of the largest stock market crash in 2019:

  • The US jobs data was stronger than expected, which dampens hopes of aggressive rate cuts from the US Fed.
  • There is no stimulus package to jump start the economy
  • Surcharge for high-income earners
  • Fraud in PNB borrowings
  • Budget 2019 proposes that the minimum public shareholding limit be revised.

Indian markets could be under pressure for some time due to a slowdown in the economy or weakening corporate earnings growth.

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