Where does the money go during a drawdown?

[fourth]

Hello! First post here so hopefully it's worth of a reply:

I'm new to trading, just working my way though Guppies Trend Trading and have been reading forums, websites, paper trading and generally learning about the whole sphere (from options to Forex, though to creative use of leverage)

My first question is:

From what I understand, at any one point the world has a static X trillion dollars. When announcements are made that 5 trillion has been lost from the markets due to recent volatility,be it subprime, China's correction etc where has the money actually gone?

Is the static X trillion view even correct or is the 'value' of the market really just an agreement of interest between all the players. What I'm trying to say is, the financial market just the same as say a auction of art.

I'm not exactly looking for a 'tree falling in the forest' kind of answer as from what I understand the people who are cashing out of the market actually have real money they are putting -somewhere-, though the only places I could think of would be Bonds, forex, commodities, etc and I would expect you would just see a bulge there as the trillions moved across.

Where does all the money go?

 

[nioka]

Hello
Where does all the money go?

Was there any real money there in the first place? Maybe it is all an illusion. What is real money? Maybe it is all a conspiracy. Do you get cash when you buy with credit, do you pay cash( or shells or gold ) when you buy shares or is it just a book entry. Are you paid in cash for work done or is it a credit in your account or a cheque which you bank and get a paper credit.The possibilities are endless. Is there any gold left in Fort Knox or has it been sold like the Gold which used to be held in Australia as a guarantee that the "pound" had value.
Makes you wonder doesn't it. When the pollies say "trust me" do you always trust them. Remember they make the rules. Or do they. Maybe the ones who have ended up with the real money make them make the rules.
But then if everyone gets the credit they need then money isn't necessary and everyone can get brought into line every now and again if the credit is withdrawn or interest increased.
Now that is something to sleep on.

 

[howardbandy]

Greetings --

If you are trading futures contracts, then your profit is your counterparties loss, and vice versa. Your drawdown goes into someone else's account.

If you are trading shares and have a long position, the decline in prices of those shares from the time you bought them to the time you sell them is your loss and no one's gain. The money evaporates.

The total value of the equity market can fluctuate -- money is created and money is destroyed -- as share prices change. There may be an underlying reason for the change, such as companies adding value through innovation or efficiency, or the change may just be due to the collective opinion of share owners.

Thanks,
Howard
www.quantitativetradingsystems.com

 

[fourth]

I'm not exactly looking for a 'tree falling in the forest' kind of answer

Thanks mate! I was sort of expecting that with the art reference. To me art has no value at all, just don't appreciate it, likewise rare coins. They only have value because someone does. I'm making the assumption that the market doesn't disintegrate totally

Lets try this, when the market takes a dive its because people are locking in profits, removing capital from volatile area's, etc. All that money goes somewhere. The hedge funds that exited at the very beginning of subprime put that value somewhere... it can't all be in bonds? Isn't there a limit to how much money a government wants to borrow (sarcasm of the US debt aside ).

I imagine small traders just exit the market and let the cash sit in a CMT account (Or something like that ) but you can't really do that with a hundred billion.

Is this value merely moved or is implied value merely 'corrected'

 

[fourth]

If you are trading shares and have a long position, the decline in prices of those shares from the time you bought them to the time you sell them is your loss and no one's gain. The money evaporates.

Bah! That was so easy! Why didn't I realise that! Thats so much. I was thinking that if a price goes down it's because someone has profited. The people who hold a share from $1 to $100 and back to $1 have never contributed more than $1 to the market.

I should have see that. I understand how realised\unrealised gains are made in property.

Thanks so much!