If someone makes an unlimited sell order for all their shares in a large cap company on the open market, how much do they have to sell before it affects the stock price? In general, how does a large open market stock sale affect prices? What is the maximum percentage of a company you could sell per day before the trading freezes, and what factors matter?
In general, how does a large open market stock sale affect prices?
A very general answer, all other things being equal, the price will move down.
However there is nothing general. It depends on total number of shares in market and total turn over for that specific shares. The order book for the day etc.
What is the maximum percentage of a company you could sell per day before the trading freezes, and what factors matter?
Every stock exchange has rules that would determine when a particular stock would be suspended from trading, generally a 10-20% swing [either ways]. Generally highly liquid stock or stock during initial listing are exempt from such limits as they are left to arrive the market price ...
A large sell order may or may not swing the price for it to get suspended. At times even a small order may do ... again it is specific to a particular stock.
The volume required to significantly move the price of a security depends completely on the orderbook for that particular security.
There are a variety of different reasons and time periods that a security can be halted, this will depend a bit on which exchange you're dealing with.
This link might help with the halt aspect of your question:
Most of the investors who have large holdings in a particular stock have pretty good exit strategies for those positions to ensure they are getting the best price they can by selling gradually into the volume over time.
Putting a single large block of stock up for sale is problematic for one simple reason:
Let's say you have 100,000 shares of a stock, and for some reason you decide today is the day to sell them, take your profits, and ride off into the sunset. So you call your broker (or log into your brokerage account) and put them up for sale. He puts in an order somewhere, the stock is sold, and your account is credited. Seems simple, right? Well...not so fast.
Professionals - I'm keeping this simple, so please don't beat me up for it!
The way stocks are bought and sold is through companies known as "market makers". These are entities which sit between the markets and you (and your broker), and when you want to buy or sell a stock, most of the time the order is ultimately handled somewhere along the line by a market maker. If you work with a large brokerage firm, sometimes they'll buy or sell your shares out of their own accounts, but that's another story.
It is normal for there to be many, sometimes hundreds, of market makers who are all trading in the same equity. The bigger the stock, the more market makers it attracts. They all compete with each other for business, and they make their money on the spread between what they buy stock from people selling for and what they can get for it selling it to people who want it.
Given that there could be hundreds of market makers on a particular stock (Google, Apple, and Microsoft are good examples of having hundreds of market makers trading in their stocks), it is very competitive. The way the makers compete is on price. It might surprise you to know that it is the market makers, not the markets, that decide what a stock will buy or sell for.
Each market maker sets their own prices for what they'll pay to buy from sellers for, and what they'll sell it to buyers for. This is called, respectively, the "bid" and the "ask" prices. So, if there are hundreds of market makers then there could be hundreds of different bid and ask prices on the same stock. The prices you see for stocks are what are called the "best bid and best ask" prices. What that means is, you are being shown the highest "bid" price (what you can sell your shares for) and the best "ask" price (what you can buy those shares for) because that's what is required. That being said, there are many other market makers on the same stock whose bid prices are lower and ask prices are higher. Many times there will be a big clump of market makers all at the same bid/ask, or within fractions of a cent of each other, all competing for business. Trading computers are taught to seek out the best prices and the fastest trade fills they can.
The point to this very simplistic lesson is that the market makers set the prices that shares trade at. They adjust those prices based (among other factors) on how much buying and selling volume they're seeing. If they see a wave of sell orders coming into the system then they'll start marking down their bid prices. This keeps them from paying too much for shares they're going to have to find a buyer for eventually, and it can sometimes slow down the pace of selling as investors and automated systems notice the price decline and decide to wait to sell. Conversely, if market makers see a wave of buy orders coming into the system, they'll start marking their ask prices up to maximize their gains, since they're selling you shares they bought from someone else, presumably at a lower price. But they typically adjust their prices up or down before they actually fill trades. (sneaky, eh?)
Depending on how much volume there is on the shares of the company you're selling, and depending on whether there are more buyers than sellers at the moment, your share sell order may be filled at market by a market maker with no real consequence to the share's price.
If the block is large enough then it's possible it will not all sell to one market maker, or it might not all happen in one transaction or even all at the same price.
This is a pretty complex subject, as you can see, and I've cut a LOT of corners and oversimplified much to keep it comprehensible. But the short answer to your question is -- it depends.
Hope this helps.
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protected by Chris W. Rea Oct 11 '17 at 10:56
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