A:

There are certain times when a broker must purchase the stock that you are selling. For example, if the broker is a market maker, the stock in question is traded on the Nasdaq and the broker is the highest bidder, that broker has a responsibility to purchase the shares. However, after purchasing the stock as a market maker, most firms will then attempt to sell them to another party for a small profit.

If the stock in question is an exchange-traded stock and the broker-dealer has a trader on the floor of the exchange (such as the New York Stock Exchange), he or she may purchase the stock or help facilitate the trade with a third party. (To learn more, read What's the difference between a Nasdaq market maker and a NYSE specialist?)

There are also times when the broker-dealer may decide to purchase the stock from you and add the position to the firm's inventory. This is essentially a compilation of securities out of which the firm may trade the near term or hold for the long haul. However, it is important to note that a broker-dealer is under no obligation to buy shares from an investor but, as a courtesy, many firms will do this, particularly if the number of shares being traded is relatively small.

On most trades, brokers act as conduits. That is, they will act to sell the stock on behalf of their clients by making the intention to sell known to all market makers/specialists in the stock. In such cases, the ultimate purchaser of the shares will be a third party.

For more insight, check out Understanding Order Execution.

RELATED FAQS
  1. What is the difference between a broker and a market maker?

    A broker is an intermediary who has a license to buy and sell securities on a client's behalf. Stockbrokers coordinate contracts ... Read Answer >>
  2. I'm new to this. Can I sell or buy stock by myself?

    In order to buy stocks, you need the assistance of a stock broker since you cannot just phone up a company and ask to buy ... Read Answer >>
  3. My broker just sold securities out of my account without my permission. Is this legal?

    Your broker's actions are not legal unless he or she sold the securities under certain conditions. Let's look at the two ... Read Answer >>
  4. There are so many stockbrokers out there. How do I go about choosing the best one ...

    If you decide that you have the knowledge and experience to take on stock investing, or if you feel you would like to give ... Read Answer >>
  5. What does "in street name" mean, and why are securities held this way?

    In almost every instance when you buy or sell securities with a broker, your name is not actually on the stock or bond certificate. ... Read Answer >>
  6. What is the cost of a share purchase?

    Find out how the total price of a share purchase is dictated by the current stock price and the fees the brokerage company ... Read Answer >>
Related Articles
  1. Investing Basics

    How To Choose The Right Online Trading Broker

    The online broker market is becoming more competitive, but differences exist in services that can help traders choose the broker that’s right for them.
  2. Brokers

    Is Your Broker Acting In Your Best Interest?

    Learn the clues you'll need to determine whether you've chosen a reputable professional.
  3. Forex Education

    Is Your Forex Broker A Scam?

    While the forex market is slowly becoming more regulated, there are many unscrupulous brokers who should not be in business.
  4. Brokers

    Evaluating Your Stock Broker

    Make sure you're getting the best service by staying informed and involved.
  5. Options & Futures

    Broker Or Trader: Which Career Is Right For You?

    A day in the life of a broker or trader is an exciting and varied one. Find out how to decide between these two financial professions.
  6. Professionals

    How Brokers Can Avoid A Market-Maker's Tricks

    Ensure that you and your clients are getting the best deal by avoiding these three pitfalls.
  7. Forex

    How Forex Brokers Make Money

    Forex brokers set their prices based on commission, spread, or a combination of both. Traders have to be cautious in the thinly regulated forex market.
  8. Forex Education

    Price Shading In The Forex Markets

    This practice puts brokers ahead of their clients, but it doesn't have to be a negative for traders.
  9. Trading Strategies

    The Best Low-Cost, Web-Based Trading Brokers

    With this table, investors can differentiate between top low-cost, web-based trading brokers by price, capabilities, and offerings.
  10. Professionals

    Broker Or Trader: Which Career Is Right For You?

    Both brokers and traders buy and sell securities, but there are some subtle differences between the two careers.
RELATED TERMS
  1. Give Up

    A procedure in securities or commodities trading where the executing ...
  2. Third Market Maker

    A third-party securities dealer that is ready and willing to ...
  3. Forex Broker

    Firms that provide currency traders with access to a trading ...
  4. Two Dollar Broker

    A floor broker who executes orders for other brokers who cannot ...
  5. Carrying Broker

    A commodities or securities broker who provides back office functions ...
  6. Executing Broker

    The broker or dealer that finalizes and processes an order on ...
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center