How a Rise Becomes a Crash

The first version of a stock exchange has been around since the early 17th century in Amsterdam, where the Dutch East India Company released shares on the Amsterdam Stock Exchange. Ever since then, a stock exchange has been formed in almost every developed country as a form of investment and money exchange. Investors hope to purchase for low, sell for high, the basic idea of money making. However, this process has proved to be a difficult one. As many investors buy and buy, the volatility and likelihood of a crash goes up and up.

Indeed, the first economic crash was of the Amsterdam Stock Exchange in the 1630s. Dubbed "Tulip Mania", the prices of tulip bulbs went up exponentially until no one wanted to buy them anymore, resulting in a crash. This was the beginning of what we call a "bubble." Today, stock market crashes happen every 20 years or so, but how do they happen?

A stock market usually crashes happens after a long period of slowly rising prices, or a short period of extreme growth. This is caused by investors buying stocks, which in turn raises the stock price. After the stock price shoots up, investors are likely to sell, since they will be making a great deal of money. This selling leads to a decrease in the price of the stock, since less people are now interested in it. In turn, when many investors sell for profit, the stock price collapses and the market crashes, rendering the stocks worthless. Similar to what happened this past week, stocks lost value dramatically due to their constant rise in price and the want of investors to make money.


Sources:
https://en.wikipedia.org/wiki/Stock_market_crash
https://en.wikipedia.org/wiki/Tulip_mania
https://www.investopedia.com/terms/d/dutch_tulip_bulb_market_bubble.asp