A broker is not required to buy from you if you want to sell shares and there is no one willing tobuy. A broker won't lose money when a stock goes down in a bear market because the broker is usuallynothing more than an agent acting on the seller's behalf when they find somebody else who wants to buy the shares.
Key Takeaways
- For a transaction to occur, there must be a buyer on one side and a seller on the other; even when prices are falling, there are buyers of the falling securities.
- A broker does not have to buy the stock you are trying to sell; a broker is there to act as an agent on behalf of the seller, finding someone to make the purchase.
- While brokers are there to facilitate trade, market makers take the opposite side of a trade and buy or sell; yet, market makers don't always offer the best prices.
Is it True That Everyone Is Selling?
Other traders and investors areon the opposite side of a transaction, not usually the broker. To say "everyone is selling" is usually an erroneousstatement, because in order for transactions to occur there need to be buyers and sellers transacting to create trades—even though those trades may occur at lower and lower prices. If everyone were to sell, there is no market in that stock (or other assets) anymore untilsellersand buyers find a price they are willing to transact at.
When a stock is falling it does not mean there areno buyers. The stock market works on theeconomic concepts of supply and demand. If there is more demand, buyers will bid more than the current price and, as a result, the price of the stock will rise. If there is more supply, sellers are forced to ask less than the current price, causing the price of the stock to fall.
For every transaction, there must be a buyer and a seller. If the last price keeps dropping, transactions are going through,which means someone sold and someone else bought at that price. The person buying was not likely the broker, though. It could be anyone, like another trader or investor who thinks the price offers an opportunity to make a profit, whether in the short term or long term.
Can a Stock Have No Buyers?
That said, it is possible for a stock to have no buyers. Typically, this happens inthinly traded stocks on the pink sheets or over-the-counter bulletin board (OTCBB), not stocks on a major exchange like the New York Stock Exchange (NYSE).
When there are no buyers, you can't sell your shares—you'll be stuck with them until there is some buying interest from other investors. A buyer could pop in a few seconds, or it could take minutes, days, or even weeks in the case of very thinly traded stocks. Usually, someone is willing to buy somewhere: it just may not be at the price the seller wants.This happens regardless of the broker.
The broker only places your order in the marketplace so it can transact with other orders. The broker itself does not typically try to solicit a trade in a stock, which means your decisions to buy and sell are up to you, and the broker just facilitatesthose decisions.
If an institution acts as the principalto a certain amount of stock, a rapidly declining stock price willaffect them. This is because, unlike an agent, the dealer is an owner of the stock. Examples of this include market makers.
Investors holding thinly traded stocks may have a hard time finding buyers, necessitating patience as they wait for a buyer to show up.
Brokers and Market Makers
As discussed above, many brokers are just trading facilitators. They don't take a position opposite to your orders. Market makers do take the opposite side of a trade, and they may act as a buyer if you are a seller or vice versa.
Some firms that offer brokerage services are also market makers.Market makers are there to help facilitate trade so there are buyers and sellers in stocks listed on the major exchanges. This doesn't mean they will always give a good price—they are just providing some liquidity. After a market maker has taken on a trade, they will then attempt to move those shares along (buy or sell) to another party, attempting to make a profit along the way.
There are also times when the market maker may decide to purchase a stock from you and add the position to the firm's inventory or sell you shares from their current inventory. The inventory is a compilation of securities out of which the firm may trade in the near term or hold for the long haul.
The Bottom Line
On most trades, brokers act as conduits. They simply post your trade in the marketplace so others can choose to transact with it. This means anyone may interact with your order, including other traders and investors, or market makers. There are times when a market marker will take the opposite side of your trade. They are providing liquidity, but will also try to turn a profit for providing that service, as any other trader or investor is hoping to do.
Most market makers and other traders will not buy something if they don't think they can make a profit on it, which means prices will drop as far as they have to in order to entice buyers back in.
FAQs
A broker is not required to buy from you if you want to sell shares and there is no one willing to buy. A broker won't lose money when a stock goes down in a bear market because the broker is usually nothing more than an agent acting on the seller's behalf when they find somebody else who wants to buy the shares.
Who buys stocks when everyone is selling? ›
If you are wondering who would want to buy stocks when the market is going down, the answer is: a lot of people. Some shares are picked up through options and some are picked up through money managers that have been waiting for a strike price.
Do you have to buy stocks through a broker? ›
While you don't need a broker to buy stocks, you'll need to work with a brokerage firm. Some brokerages will carry out trades on your behalf while others offer an automated robo-advisor.
Can your broker sell your shares? ›
Brokers are not allowed to sell your stocks unless you have given them permission to do so. You have the ultimate authority over how the money you invest is handled.
Should you buy shares in a bear market? ›
Don't try to catch the bottom: Trying to time the market is generally a losing battle. One thing to keep in mind during bear markets is that you aren't going to invest at the bottom. Buy stocks because you want to own the business for the long term, even if the share price goes down a little more after you buy.
What happens if you sell a stock and nobody buys it? ›
When there are no buyers, you can't sell your shares—you'll be stuck with them until there is some buying interest from other investors. A buyer could pop in a few seconds, or it could take minutes, days, or even weeks in the case of very thinly traded stocks.
What happens when there are no more shares to buy? ›
If there is demand but no supply, the usual result is a price spike. There are actually two prices for every stock, the highest “BID” price and the lowest “ASK” price.
Does your broker own your stocks? ›
The name that appears on the stock or bond certificate is that of the broker, but the person who paid for the securities retains ownership rights. Having securities held electronically in street name facilitates speedy trading and reduces trading costs.
Do you have to pay a stock broker? ›
Brokerage fees are any commissions or fees that your broker charges you. Also called broker fees, they are generally charged if you buy or sell shares and other investments, or complete any negotiations or delivery orders. Some brokerages also charge fees for consultations.
Is it better to invest with or without a broker? ›
If you invest in funds, discount brokers charge lower management costs than banks, ranging from 0.2% or lower. Consequently, you have greater control over your money and assets due to a lack of investment barriers and more varieties of assets. Trading with discount brokers is both efficient and time-saving.
The broker does receive an amount of interest for lending out the shares and is also paid a commission for providing this service. In the event that the short seller is unable (due to a bankruptcy, for example) to return the shares they borrowed, the broker is responsible for returning the borrowed shares.
Can Charles Schwab sell your stock without permission? ›
For our protection or to satisfy your obligations to us, we can, at our discretion and without prior demand or notice, sell or otherwise liquidate all or any part of the Securities and Other Property, securing your obligations or closing any or all transactions in your Schwab Account.
Can you switch brokers without selling stock? ›
Most firms allow for in-kind brokerage account transfers, enabling customers to move existing investments directly from one broker to another without first having to sell investments and then transfer the cash proceeds. In-kind transfers typically do not incur costs.
What is the longest bear market in history? ›
The longest bear market lingered for three years, from 1946 to 1949. Taking the past 12 bear markets into consideration, the average length of a bear market is about 14 months. How bad has the average bear been? The shallowest bear market loss took place in 1990, when the S&P 500 lost around 20%.
How to make money in a bear market? ›
But you can maximise your chances of a profit in a bear market by following bearish-friendly strategies. These include diversifying your holdings, focusing on the long-term, taking a short-selling position, trading in 'safe haven' assets and buying at the bottom. Can you lose money during a bear market?
Why do people sell stocks in a bear market? ›
Understanding Bear Markets. Stock prices generally reflect how investors expect companies to perform. If a company has lower-than-expected profits, or experiences less growth than analysts predicted, investors may respond by selling the company's stock, which makes the overall price decline.
Who is buying the stock when you sell it? ›
In some cases, your broker sends your shares to the exchange floor where a “market maker” buys your shares and then works on finding a buyer. Most stocks and ETFs trading on the New York Stock Exchange or the Nasdaq NDAQ -1% are highly liquid because there are many buyers and sellers.
When everyone is selling buy? ›
Famous and super-rich investor Warren Buffett is credited with a quote something along the lines of “buy when everyone else is selling.” Buffett is also credited with the line “Be fearful when others are greedy and greedy when others are fearful.”
Who pays you when you sell a stock? ›
When you sell your stocks the buyer pays the money; when you buy the stocks the money you paid goes to the seller. The transactions are handled by stock brokers.
How to buy share when there is no seller? ›
If there are no sellers in whole exchange:
- Market Turnover will be 0.
- All stock prices remain the same.
- Stock indices remain unchanged.
- Still Buyers can submit their bids though. ...
- As due to no supply (of shares), demand rises and buyer will start bidding with higher prices.
