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. How is it possible to trade on a stock you don't own, as is done in short selling?

    Understand how the process of short selling allows a person to sell a stock he or she doesn't technically own by borrowing ... Read Answer >>
  2. What does the variance between the bid and ask price of a stock mean?

    Find out how stocks are traded in the market, why the bid and ask prices are different and why the bid-ask spread is smallest ... Read Answer >>
  3. What are the key factors that cause the market to go up and down?

    Discover how factors like wars, inflation, government policy, technological change, corporate performance and interest rates ... Read Answer >>
Related Articles
  1. Investing

    The Ins And Outs of Seller-Financed Real Estate Deals

    There's more than one way to buy or sell a house. Seller financing presents yet another unique option.
  2. Investing

    5 Reasons Why You Still Need A Real Estate Agent

    Doing the work yourself can save money, but it could end up being more costly than a realtor’s commission in the long run.
  3. Insights

    A Breakdown on How the Stock Market Works

    Learn what it means to own stocks and shares, why shares exist, and how you buy and sell them.
  4. Investing

    Understanding Real Estate Commissions: Who Pays?

    When you set out to buy or sell a house, one factor worth considering is the real estate agent's fees.
  5. Investing

    6 Questions For Your Realtor

    Before you start working with a real estate agent – especially if you're the one paying the agent's commission – make sure you've made the right choice.
  6. Investing

    How Real Estate Agents Get Paid

    Most real estate agents are paid a percentage of the property’s selling price, which is called a commission.
  7. Insights

    Tips For Face-to-Face Buying And Selling

    Be aware of these dangers when buying or selling goods in person.
  8. Investing

    5 Tips For Recession House Hunters

    Follow these five tips to get a leg up on rival bargain hunters.
  9. Investing

    5 Ways To Save On Real Estate Fees

    Even a 1% reduction in real estate commissions can save you thousands of dollars.
RELATED TERMS
  1. Buyer's Market

    A situation in which supply exceeds demand, giving purchasers ...
  2. Settlement Agent

    1. The party involved in completing a transaction between a buyer ...
  3. Offer

    1. When one party expresses interest to buy or sell an asset ...
  4. For Sale By Owner - FSBO

    A method of selling property without the use of an agent or broker. ...
  5. Negotiated Market

    A type of secondary market exchange in which the prices of each ...
  6. Thin Market

    A market with a low number of buyers and sellers. Since few transactions ...
Hot Definitions
  1. Marginal Utility

    The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important ...
  2. Contango

    A situation where the futures price of a commodity is above the expected future spot price. Contango refers to a situation ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Acid-Test Ratio

    A stringent indicator that indicates whether a firm has sufficient short-term assets to cover its immediate liabilities. ...
  5. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that ...
  6. Taxes

    An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government ...
Trading Center