The price of a stock may drop to zero, but you'll never lose more than you invested. While losing all your investment is painful, your obligation ends there. You won't owe money if the value of a stock falls. If the price of a stock falls, you don't necessarily owe money.
The stock price must fall more than the percentage of the margin you used to finance the purchase in order to owe money. You can't have negative money in stocks because, even if your stock price fluctuates or falls dramatically, you can't reach a value below zero. However, while this cannot happen, the book value can turn negative and you may lose more money than you invested or end up in debt. More experienced investors can use more complex strategies (such as buying stocks on margin) to increase their purchasing power.
If a company that issues penny stocks has a poor business model, its stock price may fall to levels close to zero. So, even if the stock price falls significantly lower, you can sell your shares at the strike price before maturity, thus protecting your investment from heavy losses. This is especially true if you take a short position in a stock of a company that isn't performing well. If you short sell a stock and it goes to zero, you will have obtained the maximum possible return on your investment.
While stocks are generally risky, stocks of poorly managed companies and penny stocks present a particular risk. Investor perception, supply and demand, and a company's profits can determine and affect the value of a stock. Another situation where you can lose more than you invested is if you take a short position in a stock and suddenly it goes up more than 100%. In addition, investors consider that the stock price reflects the current value of the company, as well as the expected future growth.
Trading stocks can make you a lot of money, as evidenced by the countless investors who have made a name for themselves in the stock market. A fixed stop is set at a specific price level, so if the share price falls to that level, a sell order is triggered. Trailing stops, on the other hand, move with the stock price every time it progresses, but when the price falls, it stays at the highest level it reached. If your stocks, bonds, mutual funds, ETFs, or other securities lose value, you normally won't owe money to your brokerage agency.
Although the value of a stock can never fall below zero, it is possible to lose more than you invested in the stock market and end up with debt. If a company files for bankruptcy under Chapter 7, it ceases to operate and its shares stop trading on the stock exchange.
