When You Buy Stocks, Where Does Your Money Go & What Do You Own?
- When You Buy Stock Through an IPO, Your Money Goes To the Company Going Public. If you buy stock through an initial public offering (IPO), it’s a fairly simple exchange. ...
- The Secondary Market: Where People, Not Companies, Pursue Their Fortunes. ...
- Once Inside the Secondary Market, Your Money Can Never Escape. ...
- About the Author. ...
Disappearing Money
Before we get to how money disappears, it is important to understand that regardless of whether the market is rising–called a bull market –or falling–called a bear market – supply and demand drive the price of stocks. And it's the fluctuations in stock prices that determines whether you make money or lose it.
Implicit and Explicit Value
The most straightforward answer to this question is that it actually disappeared into thin air, along with the decrease in demand for the stock, or, more specifically, the decrease in investors' favorable perception of it.
Disappearing Trick Revealed
For example, let's say Cisco Systems Inc. (CSCO) had 5.81 billion shares outstanding, which means that if the value of the shares dropped by $1, it would be the equivalent to losing more than $5.81 billion in (implicit) value.
When You Buy Stock Through an IPO, Your Money Goes To the Company Going Public
If you buy stock through an initial public offering (IPO), it’s a fairly simple exchange. You, the buyer, pay the company issuing the shares whatever price it charges for a slice of the business.
The Secondary Market: Where People, Not Companies, Pursue Their Fortunes
Once a company creates, issues and sells shares to investors through an IPO, those shares exist in the realm of the secondary market, which is what most people think of as the “stock market.” That’s where investors buy and sell shares they already own to and from other investors — not the issuing entity — on exchanges like the Nasdaq composite and the New York Stock Exchange..
Once Inside the Secondary Market, Your Money Can Never Escape
People talk about “pulling their money out of the market” or “harvesting gains.” The truth is, the secondary market is kind of like Hotel California — you can sell shares any time you like, but once your money finds its way to the secondary market, it can never leave.
About the Author
Andrew Lisa has been writing professionally since 2001. An award-winning writer, Andrew was formerly one of the youngest nationally distributed columnists for the largest newspaper syndicate in the country, the Gannett News Service.
How a Company's Value Can Shrink
First, we need to understand how a company's value is "created." When a stock's price increases, it does so because there are more people willing to buy the stock (demand it) than people willing to sell it (supply it).
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.
When is my stock sell order executed?
Right now, Stockpile executes orders using end-of-day prices. Because our time-machine is in the shop, we must wait until the actual end of the trading day at 4pm Eastern to get your price. Sometimes it takes a little while to reflect the updated positions in your account, but you should see the cash in your account by the following morning.
So I can make another trade with my proceeds right away?
Yes! As soon as the sale is reflected in your Stockpile account, you can use that cash to purchase more stock. Just keep in mind that your purchase order will execute using the end-of-day price.
What I really want is to sell and move the proceeds to my bank account
It takes about a week for two reasons: 1) there’s a settlement period for a stock sale, and 2) there’s a clearing period for the transfer to your bank. A sample timeline looks like this:
Sell and Transfer Funds
If you're ready to sell some stocks, log in to your online brokerage account and open your trading window. Review your current stock holdings and select the positions you feel are ready to close out.
Verify It's Worth Selling
It's beneficial to do some double-checking before buying or selling stock. Open a chart window and enter the first stock symbol on your potential close list. Use indicators to help determine if the trend is stalling or if the stock still has room to rise.
Waiting Periods
You'll generally face a mandatory waiting time before you can initiate a funds transfer to your bank account. All trading firms must follow Regulation T, enacted by the Securities and Exchange Commission, which mandates a three-day waiting period.
Transferring to the Bank
There are often multiple ways to transfer the money from your brokerage account to the bank once the waiting period is over. These can include automated clearing house, or ACH transfers, wire transfers and receiving a paper check in the mail.
