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.



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