A broker won't lose money when a stock goes down because he or she is usually nothing more than an agent acting on sellers' behalf in finding somebody else who wants to buy the shares. Even though sellers never meet the other party because everything is done over electronic trading systems, there always is another person (or company) at the other end of a transaction.

When everybody is selling in an effort to get their money out of the market, it is known as market capitulation. If a dealer in an institution acts as the principal (or the main party to a transaction) to a certain amount of stock, a rapidly declining stock price will certainly affect him or her. This is because, unlike an agent, the dealer is an owner of the stock.

It's important to know that when a stock is falling this does not mean that it has no buyers. The stock market works on the basic economic 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. When stocks are traded, it means that buyers and sellers are coming together in equilibrium.

That said, it is possible for a stock to have no buyers. Typically, this happens only for thinly 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, and you'll be stuck with them until there is some interest from other investors.

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  2. Does a broker always have to buy a stock if I want to sell it?

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  3. What does it mean when my broker says that shares are for auction?

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  4. Why don't stocks begin trading at the previous day's closing price?

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  5. What is the difference between a broker and a market maker?

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