How Does a Stock Market Crash Occur?

Stock market crashes are the common phenomenon which occurs repetitively. A stock market crash is an event when the prices of most of the stocks in the exchange drop down by a large value. This is an event of catastrophic drop of the price value of the shares. The reasons of the stock market crash can be many like economic activity, speculation, psychology of investors and even political events. These reasons are discussed below.

Economic Activity: The economic activity is an important factor which affects the ups and downs of the financial market. The economic slowdowns such as recessions can be a factor leading to stock market crash. Factors such as inflation also affect the stock market very severely. This may also lead to a stock market crash.

Speculation: Trading in the stock market creates a lot of speculation. The speculation is an essential aspect of the stock market. The high speculation may sometimes act as a trigger for the stock market crash.

Psychology of Investors: The psychology of the investors can also be responsible for triggering a stock market crash. The wrong psychology can lead to imbalance which will ultimately lead to a crash in the stock market. 

Political Events: The beginning of the stock market crash is usually a event which is generally of political importance. The political situations like that of crisis or war are usually responsible for a stock market drop down. This will generally lead to a stock market crash. 

Thus above are the reasons for the stock market crash. To trade effectively in the stock market one can learn the technical analysis and fundamental analysis. The advisory firms which provide accurate stock market tips can also be consulted. The advisory firms use both the fundamental and technical analysis to anticipate the price movements. They also monitor various news and results. Thus they can easily warn us about a tentative stock market crash.