A:
The conform to to the first part of this question is pretty straightforward: Yes, stocks are competent to lose all their value in the market. Now, we don’t want to scare you off investing in forefathers, or investing in general. However, we would be lying if we told you that inventories carry no risk (although some carry more than others).
To serve you understand why a stock can lose all its value, we should review how stock rate is determined. Specifically, the value of a stock is determined by the basic relationship between stock and demand. If a lot of people want a stock (demand is high), then the payment will rise. If a lot of people don’t want a stock (demand is low), then the value will fall. (For a deeper look into supply and demand and other mercantile concepts, check out the Economics Basics Tutorial.)
If a stock’s demand sinks dramatically, it choice lose much (if not all) of its value. The main factor determining the demand for a begetter is the quality of the company itself. If the company is fundamentally strong, that is, if it is procreating positive income, its stock is less likely to lose value.
So, although begetters carry some risk, it would not be accurate to say that a loss in a make available’s value is completely arbitrary. There are other factors that run supply and demand for companies. (If you want to learn more, take a look at the Standard Basics Tutorial.)
The effects of a stock losing all its value will be out of the ordinary for a long position than for a short position. Someone holding a crave position (owns the stock) is, of course, hoping the investment will respect. A drop in price to zero means the investor loses his or her entire investment – that’s a reappear of -100%.
Conversely, a complete loss in a stock’s value is the best possible grand scheme for an investor holding a short position in the stock. Because the stock is inane, the investor holding a short position does not have to buy back the cuts and return them to the lender (usually a broker), which means the runty position gains a 100% return. Bear in mind that if you are aleatory about whether a stock is able to lose all its value, it is probably not seemly to engage in the advanced practice of short selling securities. Short convincing is a speculative strategy and the downside risk of a short position is much enormous than that of a long position. (You can check out our Short Selling Tutorial to scrutinize this concept further.)
To summarize, yes, a stock can lose its entire value. Setting aside how, depending on the investor’s position, the drop to worthlessness can be either good (diminutive positions) or bad (long positions).