Your stock market questions answered

[wolf]

Could we go back a bit please, because I still don't understand how there's always a buyer for a stock being sold, even if it's in a desperate tailspin heading for delisting ...

[lookout123]

you know the addage about a sucker being born every minute? there is always someone who thinks that ABC is a bargain.

but at some point the market does dry up. I have had instances where there was "no market" for my client's shares. it happens quite a bit when someone buys penny stocks - they tend to go bad and no one wants to buy. in that case, the holder of those shares gets to just keep hanging on to them. it is sort of like real estate - it is only worth something if someone wants to buy it.

for the most part though, there is always an open order to buy of ABC and an open order to sell of ABC. The "market maker's" (the people in the colored coats) are there to match the two up and charge a fee along the way.

[tw]

Originally Posted by wolf

Could we go back a bit please, because I still don't understand how there's always a buyer for a stock being sold, even if it's in a desperate tailspin heading for delisting ...

In order to increase liquidity, the NYSE also has what are called specialist firms. Their job is to buy equities when no one else is available. During the 1987 stock market crash, these specialist firms bought massive amounts of stocks when no one was buying. The Federal Government even setup emergency loans to these specialists so they could buy those stocks. Loans that helps maintain the integrity of the market. As a result, those specialists later sold stocks mostly at a profit.

Specialist firms were mostly family owned organizations. But since then, most (if not all) specialist firms have been bought up by large equity firms. Listen closely to the news. Those specialist firms are now under investigation for trading activities. Back then, the purpose of a specialist firm was to serve the market. Today, profits have become more important meaning that some specialist firms are under SEC or NY state investigation. Back then, the good name of that family was at stake. Today ....

Stock markets are carefully to keep stocks liquid. A stock market will do everything possible to assure an equity can be sold. Stocks that trade too thinly can even be delisted from that exchange. All this so that a market always exists for your equity. The liquidity of your stock is very important to those who own and operate stock markets.