25

When buying or selling stocks, the transactions seem to take place relatively quickly. I could almost assume that someone will buy my stocks when I sell and someone will sell me when I want to buy.

Will there be a scenario in which I want to sell, but nobody wants to buy from me and I'm stuck at the brokerage website? Similarly, if nobody wants to sell their stocks, I will not be able to buy at all?

1
  • 5
    Would you be using market or limit orders? I could imagine scenarios with limit orders easily being unfilled because the prices picked are so different from where the stock is trading, e.g. trying to buy shares in Apple for $1/share likely won't be filled. – JB King Jan 18 '15 at 21:23
23

If the stock has low liquidity, yes there could be times when there are no buyers or sellers at a specific price, so if you put a limit order to buy or sell at a price with no other corresponding sellers or buyers, then your order may take a while to get executed or it may not be executed at all.

You can usually tell if a stock has low liquidity by the small size of the average daily volume, the lack of order depth and the large size of the gap between bids and offers.

So if a stock for example has last sale price of $0.50, has a highest bid price of $0.40 and a lowest offer price of $0.60, and an average daily volume of 10000 share, it is likely to be very illiquid. So if you try to buy or sell at around the $0.50 mark it might take you a long time to buy or sell this stock at this price.

10
  • 2
    This doesn't really directly answer the question, though. The answer is basically that, yes, there is always someone who will buy or sell a given stock that is listed on an exchange. These are known as market makers and they will always buy at the listed asking price or sell at the listed offer price. See Mike's answer. Someone will always buy or sell the stock, though there's obviously not necessarily at the last sale price. If that were guaranteed, then stock prices would never change. – reirab Jan 18 '15 at 1:33
  • 3
    @reirab - at no time does the OP mention market orders, and I specifically mentioned how you may not be able to buy or sell at your specific price with illiquid stocks using limit orders. If using a market order - yes you will buy or sell, but in an illiquid stock with a large spread you will get a very bad price for it, likely more than 10% away from the last traded price. So only someone looking to lose money would use a market order to buy or sell an illiquid stock. – Victor Jan 18 '15 at 10:25
  • 1
    @keshlam - if you are buying into such an illiquid stock in the first place I don't think you would have any investment strategy, you would be purley gambling. Also using market orders in such a situation you would instantly make a loss buying in and then another one selling out. There is nothing wrong in accepting a loss for a trade that goes against you for a stock that is more promising, but firstly your normal advocacy is to buy more of a falling stock, and secondly your investment plan should keep you out of illiquid stocks. For example, I never buy anything with ave vol below 100000. – Victor Jan 18 '15 at 20:11
  • 1
    @reirab - and the OP does not ask specifically about market orders - so there are occasions when using limit orders when the order would not be executed. Plus if dealing with an illiquid stock it would be quite stupid to place a market order. – Victor Jan 19 '15 at 23:22
  • 1
    @reirab - and by explaining about how limit orders work also shows how some orders may not be executed for a long period. The OP asks if there is a scenario when he/she wants to sell and no one wants to buy or when he/she wants to buy and no one wants to sell, then the limit order provides this scenario, especially in illiquid stocks. There is no specification about the type of order just if the scenario exists - and it does exist with limit orders – Victor Jan 20 '15 at 1:03
15

Will there be a scenario in which I want to sell, but nobody wants to buy from me and I'm stuck at the brokerage website? Similarly, if nobody wants to sell their stocks, I will not be able to buy at all?

You're thinking of this as a normal purchase, but that's not really how US stock markets operate.

First, just because there are shares of stock purchased, it doesn't mean that there was real investor buyer and seller demand for that instrument (at that point in time). Markets have dedicated middlemen called Market Makers (NASDAQ) or Specialists (NYSE), who are responsible to make sure that there is always someone to buy or sell; this ensures that all instruments have sufficient liquidity. Market Makers and specialists may decide to lower their bid on a stock based on a high number of sellers, or raise their ask for a high number of buyers.

During an investor rush to buy or sell an instrument (perhaps in response to a news release), it's possible for the Market Maker / specialist to accumulate or distribute a large number of shares, without end-investors like you or I being involved on both sides of the same transaction.

9
  • 2
    Are you saying that if there is an illiquid stock and you put an order to buy or sell the market maker will make a market in the oposite direction so your order will go through? If you are this is incorrect. – user9822 Jan 18 '15 at 0:22
  • 2
    A market maker will not make a market at any price. So if someone places a limit order far from the market price of an illiquid stock that order will not be executed by a market maker and it will be left in the market possibly until the order is cancelled. – user9822 Jan 22 '15 at 21:35
  • 2
    Why don't you read the question and then see that it is you that is imagining things. If a market order is placed you are guaranteed execution (market maker or not, as long as there are orders in the books)' if a limit order is placed there is no guarantee of execution, simple as that. – user9822 Jan 22 '15 at 21:54
  • 3
    @supercat that would lose money. They're not making a market so that you can buy at the price you want. They're making a market so that you can buy if you're willing to pay the price that they calculate. In a case where there's nobody selling, it'll likely be higher than last trade. – Xalorous Oct 20 '16 at 15:19
  • 2
    @supercat Please research. Investopedia explains it much better than I can. – Xalorous Oct 20 '16 at 16:30
2

Will there be a scenario in which I want to sell, but nobody wants to buy from me and I'm stuck at the brokerage website? Similarly, if nobody wants to sell their stocks, I will not be able to buy at all?

Yes, that is entirely possible.

2
  • 2
    Just curious, how would this happen and what would it be like when it happens? – xenon Jan 17 '15 at 13:29
  • 3
    @xenon you will place an order and nothing happens, for days on end, months even, and possibly never getting filled by anybody else. – CQM Jan 17 '15 at 13:33
2

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.

In this link describes clearly: http://www.investopedia.com/ask/answers/03/053003.asp

0

No, Mark is right, if you place a market order there will always be someone to buy or sell at the market price. Only if you place a limit order on the price can it not sell or be bought. Just research on your computer and you will find your answer. You must be specify about open order or limit order when asking.

0

Well Company is a small assets company for example it has 450,000,000 shares outstanding and is currently traded at .002. Almost never has a bid price.

Compare it to PI a relative company with 350 million marker cap brokers will buy your shares.

This is why blue chip stock is so much better than small company because it is much more safer. You can in theory make millions with start up / small companies.

You would you rather make stable medium risk investment than extremely high risk with high reward investment

I only invest in medium risk mutual funds and with recent rallies I made 182,973 already in half year period.

1
  • 1
    Welcome andrew. This point of view is good, however it does not really answer the question asked. Please edit it to make it more relevant to the question. – Dheer Nov 22 '16 at 6:24
-1

Many people assume that if the price of something is $10 and they have 1,000 of that thing, they should expect to be able to sell them for something around $10,000. Such an assumption may hold much of the time, but it doesn't always. Worse, the cases where it fails to hold are often those where it would be relied upon most heavily. Such an assumption should thus be considered dangerous.

In a liquid market, the quantity of a something that people would be willing to buy at something close to the market price will be large relative to the quantity that people would seek to sell in the short term. If at some moment in time one person in the market was willing to immediately buy 500 shares at $9.98 and another was willing to immediately buy 750 at $9.97, someone seeking to sell 1,000 shares could immediately receive $997.50 for them (selling 500 to the first person and 500 to the second, who would then be ready to buy 250 more from the first person who was willing to sell for $9.97). Such behavior would be in line with what many people's assumptions.

In an illiquid market, however, the quantity of something that people would be willing to buy near market price could be surprisingly low. This is more often a problem in the marketplace of things like collectibles than of stocks, but the same thing can happen in the stock market. If there's one potential buyer for a stock who thinks it's overpriced but has potential and would be worth $9.50, but that person only has $950 to spend, and nobody else thinks the stock would be worth more than $0.02/share, then until people sold a total of 100 shares the price would be $9.50, but after that the price would drop instantly to $0.02. There would be no "cushioning" of the fall. If the person with 1,000 shares was first in line, he'd get to sell 100 shares for $950 to the aforementioned seller, but would be unable to get more than $18 for the remaining 900.

A major danger with markets is that markets which are perceived as liquid attract people to the buying side, while those which are seen as illiquid repel people. The danger in the latter is obvious (having people flee a seemingly-illiquid market will reduce its liquidity further) but the former is just as bad. Having people flock to a market because of its perceived liquidity will increase its liquidity, but can also create a "false price floor", causing demand to appear much stronger than it actually is. Unless real demand increases to match the false price floor, the people who buy at the higher price will never be able to recoup their investment.

Not the answer you're looking for? Browse other questions tagged or ask your own question.