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Stock Market Crash Definition and Examples

A stock market crash depicts a situation when a broad index experienced a drastic decline (usually a double-digit one) along with other financial-related indices. This happens due to the stock market being influenced by volatility in a great way.

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As a result, we can observe the market tribulation either in the short or in the long-term period. We cannot say there is a specific percentage to be used as the stock market crash definition (unlike bearish or bullish conditions). On the other hand, traders and other market participants are generally well-aware of how and when it happens.

In this article, we will describe some examples of the market crashing as well as the situation with the stock market crash today.

What Is a Stock Market Crash? A Deeper Definition

Several factors drive a stock market crash today. They generally involve:

  1. Crowd purchasing and selling dynamics.
  2. Developments or declines in the real global/local economy.

As a rule, such crashes take place after catastrophic events. They become the main signal of a bursting speculating bubble. Market participants start to panic, which forces them to go short in the effort to get rid of such assets as bonds or stocks. Eventually, the price collapses, as the markets are snowed under the assets that participants try to sell as fast as possible.

Possible Consequences of the Stock Market Crash

Both society and traders are highly affected by market crashes:

  • On the one hand, investors watch their portfolio values decline with the asset price collapsing. The same thing refers to the stock price in regards to public companies.

On the other hand, society suffers from insecurity in terms of retirement plans. Additionally, a stock market crash is a signal for more job losses in the nearest future alongside declining disposable income levels.

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The situation forces central banks to take drastic and sometimes even extreme measures. The main mission here is to try to restore the normal market operation. The main tools to restore the financial situation usually involve:

  1. Reduced interest rates.
  2. Normal market rules or halt trading adjusted.
  3. Provision of enhanced liquidity for the financial sector.

The population will have to look for a secure and reliable bank to keep their money assets safe while investors have to deal with market panic and take extraordinary moves.

Stock Market Crash Examples

The global economy has already witnessed several severe market crashes. They include the crash in 1929 during World War I. Then, the world saw the crash in 1987 featuring the Dow Jones Industrial Average falling by 22.8% showing the biggest ever short-term decline. In 2008, the stock market collapsed after the Lehman Brothers failure that led to DJIA dropping 777.7 points.

Will the Stock Market Crash in 2022?

The Ukrainian crisis led to all major assets (from stocks and oil to wheat and natural gas) recording enormous swings. Some of those swings performed at the most extreme levels over the last 20 years. It shows the inability of investors to predict how the situation will develop in the near future.

The situation gets even worse considering the fact traders had to deal with tighter policy established by the FED followed by the challenge that arose after Russia invaded Ukraine. Now, we have increased market uncertainty and the geopolitical crises that threaten the global economy.

Inflation today shows its highest high over the last 40 decades. This fact forced the FED to take drastic measures and raise the level of an interest rate for the first time since 2018. The good news is that the economy moves in cycles. At some point, you will have to learn how to trade in the post-crisis period with the financial market restoring after the crash.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.