No, stocks cannot go negative. Specifically, a stock price cannot be a negative number. A stock price percentage change can be a negative number, but the stock price can never fall below zero.
In finance, going negative means having a value under zero.
Some financial numbers, such as corporate income, gross profit, cash flow, and operating income, can go negative.
Companies often report negative cash flows, gross profits, and losses. Rivian Automotive (RIVN) recently reported a quarterly gross profit of -$82 million and a quarterly operating loss of -$776 million.
To go negative, a financial number needs to be continuous. Securities and Exchange Commission (SEC) regulations require publicly-traded US companies to report quarterly cash flow and income. You will see negative cash flow, gross profit, and income numbers in financial reports.
Can you Go Negative in Stocks?
A stock cannot go negative because stocks are assets. Assets can lose all their value and fall to a price of zero. Hence, a stock can fall to $0.00. However, the stock price cannot fall below zero.
Thus, you can lose all the money you invest in stocks. However, you cannot lose more money than you invest unless you buy stock through a margin account. A margin account allows you to buy stocks on credit.
You can lose money in a margin account because you will owe the purchase price of stocks, even if the stock price collapses. If you buy $5,000 worth of stocks on the margin, and the stocks fall to $3,000, you will owe $2,000. However, you will owe the $2,000 on the money you borrowed, not the stock.
Your brokerage can issue a margin call if you do not repay margin loans. In a margin call, the brokerage sells the stocks to recover its losses.
How can a stock go negative?
A stock cannot go negative. However, a company can report negative financial numbers and go bankrupt if it runs out of cash or loses the ability to borrow money.
Even the stocks of bankrupt and money-losing companies will not go negative. Most companies will still retain some value in assets such as real estate, equipment, accounts receivable, intellectual property, brand names, and inventory. A bankrupt film studio could still own a valuable movie library, and a bankrupt mining company can own mineral rights.
The stock of failing companies can fall to low prices. Shares in the American department store company JC Penney last traded at 14.59₵. Penney went bankrupt during the COVID-19 pandemic and was eventually bought by Simon Property Group and Brookfield Asset Management, Inc.
Can Stock Prices go Negative?
Stock prices cannot go negative because most stocks do not lose all of their value.
Instead of going negative, many stocks will become penny stocks. A penny stock is a cheap stock that trades on over-the-counter exchanges. Penny stocks sell for low prices, often below $1, hence, the term penny stock.
If a stock price falls below the minimum threshold, major stock exchanges like the NASDAQ will delist the company. Delist means they remove the stock from the exchange.
Most brokerages and trading platforms do not allow penny stock trading. If a stock is delisted, its price could be close to zero.
Another reason why stock prices cannot go negative is because most trading platforms and brokerages will not sell unlisted stocks. Trading platforms and brokerages make money by charging fees or commissions on trades. If the stock is too cheap, the platform or brokerage does not make money.
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Can I go Negative with Stocks?
Going negative with stocks is impossible but losing money in the stock market is easy. A stock can lose most of its value in the market, but it cannot lose all of its value. Yet many stocks can lose hundreds or thousands of dollars because the market often overpays for stocks.
Netflix’s share price fell from $691.69 on November 17, 2021, to $192.49 on April 29, 2022. Thus Netflix (NFLX) lost over two-thirds of its share value in six months. Yet Netflix had $6.009 billion in cash and short-term investments and $44.5331 billion in total assets on March 31, 2022.
Netflix retains enormous value despite the collapse of its share price. The Netflix example shows you cannot go negative with stocks that trade on large public exchanges such as the NYSE and the NASDAQ.
Can you go Negative in Penny Stocks?
If you buy penny stocks on margin or use borrowed money through credit cards, your investment can go negative, but penny stock prices cannot be negative.
Some penny stocks can go to zero because many penny stocks have no value. The only value behind shares in a questionable gold-mining company could be a few worthless mining claims.
One reason penny stocks can go to zero is that the Securities and Exchange Commission (SEC) does not regulate most penny stocks. That means the penny stock companies do not have to publish a prospectus or a financial statement.
Those companies can sell worthless stock because they do not have to list their assets or publish financial reports. Hence, you cannot tell if those companies make money. Predictably, some penny stocks are scams while others are just junk.
You can go negative in stocks if you buy penny stocks using borrowed money. Investors who buy stocks listed on the public exchanges do not have to worry about going negative in stocks.
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