Do the bags « burn » the billions really? How financial markets work
The expression is often used in the media, but it is not technically correct. This, however, does not mean that there have been no damage
« Red bags: Europe burns 890 billion». It is the title with which it opens today Corriere.it. It is the great and negative news of the day. But what does it mean that the « bags burn »? It is an expression widespread in the language of the media that evokes in our mind a mountain of banknotes reduced in ash without the possibility of being more recovered. In reality it is not so, from an economic point of view, in fact, it is an expression that does not have a real meaning. The billions of today’s title, in fact, are not « burned », that is, they have not disappeared: they are actually passed from hand because in the financial markets generally if someone loses there is always someone who earns us. This expression is therefore incorrect, but this does not mean that there have been no damage.
Basic information
To better understand, let’s start from what an action is. It is a financial qualification that represents a fraction of a company listed on the stock exchange. The actions exist in limited quantities: having an action means therefore having a share of the company. Following the law of demand and demand, which determines the price with which the securities (i.e. the actions) are sold, what is happening at the moment is that the price of actions in the financial markets has fallen since many wanted to sell (excess of offer) and few to buy (lack of demand.
The reactions of the markets to Trump’s duties
Due to the duties introduced by the President of the United States Donald Trump, investors are presuming that many companies will not be able to sell all the products that had budgeted to market before Trump’s decisions. These companies, therefore, is assumed that they will undergo losses, with the consequence that the owners of the actions will be distributed less profits. Here then many investors rushed to sell their actions. But since those actions are not attractive at the moment, there are few investors willing to buy them. Fearing to suffer greater losses, therefore, the shareholders sold at a lowered price. Those who bought them at a good price hopes to be able to resell them in the immediate future (when the waters have calmed down) at a higher price, earning us.
Who has lost us?
Therefore, if the actions of a company have lost value, its capitalization also fell of the same percentage. When the newspapers say they went « in smoke » billions, therefore, they intend to have the value of capitalization has fallen. To lose us in all this is those who have purchased those actions to a higher value than they have now sold them, realizing a tiny. Those who did not sell, did not technically lose anything. But if for some reason he decides now to get rid of it, then he would see his assets, this yes, reduced compared to before the collapse on the stock exchange. Companies continue to operate. After the price has fallen for the panic of investors, in fact, the situation usually stabilizes and over time can improve.
