Many crises have a common hoki222– overheated asset. When a certain value causes a stir in demand, it is sold much more expensive than its real value. When the price approaches a figure that is unacceptable to potential buyers, the market hits the price. There are fewer people who want to buy an asset, sellers lower the bar, but it does not help. Panic sale replaces the hype demand. This continues until the price bounces off the bottom and goes up, but is no longer at this rate.
In turbulent markets, you can earn, but the risk of losing everything is much higher. In this article, we will tell you how it happens in the example of several crises.
Rare bulbs turned into a profitable asset: the price of one many times exceeded the annual earnings of the artisan. Among the buyers were flower growers, professionals, art collectors, investors who planned to earn money on flowers.
It is obvious that tulips do not grow in winter. Then enterprising flower growers began to sell the crop, which was just going to grow in the season. There was a deal with such conditions: the seller promised to deliver the goods by the spring, and the buyer undertook to buy the goods. The price was determined before delivery, at the time of the transaction.
This commitment, signed by the parties, could be traded no less successfully than the tulips themselves. Prices for such paper actively fueled by rumors of speculators and promises that soon everyone will be interested in the flower and prices will rise many times.
This is how futures trading works: the investor buys not an asset, but an obligation to buy or sell it in the future, but at the current market price. It was during the tulip crisis that futures trading became a phenomenon.
Two years later, when the psychological bottom was passed, the market grew again, although not until the indicators of 1636 Tulips began to sell at a fair market price, without the hype of demand and panic sales. Then the price of tulips gradually decreased, no longer causing catastrophic consequences for bidders.
Sick, but once valuable tulips in a few generations died out. And history got the first detailed documented stock market bubble. The names of those who made fortunes on speculations with tulips have not reached our days. However, the conclusion begs itself: earned those who were able to stop in time and leave the game just at the moment when the price of bulbs and futures was growing or was already as high as possible. Tulip dealers were lucky: they managed to sell the overheated asset before the market collapse.
Some even compare such crises with the gambling industry. Like there is difficult and practically impossible to come up with a working strategy in keno or roulette, it is also very hard to predict any crisis that will take place in the future.