What Is A Fair Market Value, Really? If You're Going To Trade, Be Sure It's Worth It!

I've been involved in online trading, especially with stock and index options, for several years. In this time I have to think about value and the fact that a large part of the time everything, whether it's a stock or currency or even a house spent is worth exactly what someone else will pay. Sure, there are a million and a price models (especially in financial markets) that will tell you what something worth should be precise. But in the final analysis, if no one will pay that much, then it is not really worth that price.

Let us illustrate this concept in a very simple way. I'm an American so I will
Use U.S. currency to make my point.

What is an account worth $ 20? Without thinking about it and talking about inflation,
exchange rates, etc. Let's just say that it is believed to be worth the effort generally
$ 20.

Would you pay me $ 20 for a $ 20 bill? I'm probably not advisable, since there
would be no real reason to do so. You should go to the trouble of
to me $ 20 and I would have to go to the trouble of giving you my $ 20
bill, and none of us would be in a better position than we were before.
Therefore, I would like to present a $ 20 bill is not really the idea
worth $ 20 because nobody would probably pay $ 20 for it!

So how much would you pay for a $ 20 bill? Would you pay $ 19.99? Is it worth
the effort for 1 cent? No? How about $ 19.50? $ 19? Shall I continue?

In a free and fair market is the market itself that determines value, and
given a sufficiently large market, that value should be fairly accurate. I read a
article online some time ago about someone who decided to carry out an experiment
just for fun. He put a new $ 5 bill for auction online and began the wait
at 1 cent. He crafted a creative description of the note, and waited for the show
results. When it was all said and done, the bill had to sell in fact - for
just over $ 3. He spoke with the winning bidder, who said he had made a
profit many times online by purchasing currency for less than face value
(Including a $ 20 bill for less than $ 10 if I remember correctly).

The conductor of the experiment left it at that - nothing more than a somewhat
humorous exploration into what people think something is worth. But for me, this
meant so much more.

A dollar is not worth a dollar ... So what is it worth? What
would you trade for $ 1? For $ 20? For $ 100? $ 1,000? And if a dollar is not
actually worth a dollar, is part of the stock worth $ 50, or in fact anything at
all?

The answer is yes. At one point it is worth exactly what someone is
willing to pay for it. No more, no less. Money and value are only ideas,
they are no absolutes.

Consider this carefully the next time you're convinced the stock, option,
mint, house, or anything else that you want to buy is worth what you are going
pay.

Jonathan van Clute is a full-time real estate investor, educator, speaker, and online options trader. In addition to his business activities, he is also a musician, video editor / animator, and one of the world's largest Segway Polo athletes. He can be reached via email at