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. Will technology ever disrupt the role of the custodian bank?

    Learn why some consider new trading and account technology a disruptive threat to custodian banking and how banks are adapting ...
  2. What is the average range for the price-to-earnings ratio in the electronics sector?

    Understand the difference between the primary market and the secondary market, and learn which investors are able to participate ...
  3. What are the benefits and shortfalls of the Herfindahl-Hirschman Index?

    Learn about the differences between equity and debt financing and how they impact financials. Find out how businesses determine ...
  4. What is the difference between open interest and volume?

    Learn more about options, what options' volume and open interest are and the difference between volume and open interest ...
RELATED TERMS
  1. Maximum Drawdown (MDD)

    The maximum loss from a peak to a trough of a portfolio, before ...
  2. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  3. Bulldog Market

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

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

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

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

You May Also Like

Related Articles
  1. Investing

    How Nasdaq Makes Money

  2. Investing

    How The NYSE Makes Money

  3. Fundamental Analysis

    What are some examples of Cash Flow ...

  4. Mutual Funds & ETFs

    Which ETF is the Best Bet: VTI or IWV?

  5. Trading Strategies

    Rules and Strategies For Profitable ...

Trading Center