If everyone is selling in a bear market, does your broker have to buy your shares from you? If so, won't he be losing his shirt?

By Investopedia Staff AAA
A:

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.

RELATED FAQS

  1. What's the difference between a cash account and a margin account?

    Compare and contrast margin and cash accounts. Margin accounts offer short-term loans, leverage on existing portfolios, and ...
  2. How is a penny stock created?

    Understand how penny stocks are issued and regulated, and learn how these sometimes rewarding but always risky investments ...
  3. What exactly is being done when shares are bought and sold?

    Most stocks are traded on physical or virtual exchanges. The New York Stock Exchange (NYSE), for example, is a physical exchange ...
  4. What happens to a company's stocks and bonds when it declares chapter 11 bankruptcy ...

    Filing for chapter 11 bankruptcy protection simply means that a company is on the verge of bankruptcy, but believes that ...
RELATED TERMS
  1. Bulldog Market

    A nickname for the foreign bond market of the United Kingdom. ...
  2. Bear Fund

    A mutual fund designed to provide higher returns when the market ...
  3. Float Shrink

    A reduction in the number of a publicly traded company’s shares ...
  4. Capital Strike

    A refusal of businesses to invest in a particular sector of the ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  6. Gray Market

    An unofficial market where securities are traded. Gray (or “grey”) ...
comments powered by Disqus
Related Articles
  1. An Introduction to Government Loans
    Economics

    An Introduction to Government Loans

  2. Should You Invest In Fannie Mae Stock? ...
    Investing News

    Should You Invest In Fannie Mae Stock? ...

  3. Is Your Psyche Ready For A Bull Market?
    Active Trading Fundamentals

    Is Your Psyche Ready For A Bull Market?

  4. Spotting A Market Bottom
    Bonds & Fixed Income

    Spotting A Market Bottom

  5. The Illusion Of Diversification: The ...
    Fundamental Analysis

    The Illusion Of Diversification: The ...

Trading Center