Who is Buying Stocks When Everyone Is Selling?

With the recent stock market drop, there was a mass sale off of stocks.  This may lead to the question:  If everyone is selling, is there a chance that there are stocks that no one wants to purchase?  The answer is technically no.  There are always as many buyers as there are sellers and that keeps the system going. 

If you are wondering who would want to buy stocks when the market is going down, the answer is:  a lot of people.  Some shares are picked up through options and some are picked up through money managers that have been waiting for a strike price. 

There are many people who set up stock limit orders so that when a stock hits a certain dollar amount, it is automatically purchased.  According to Money.cnn.com, “If you place a market order with your broker, then you are saying that you’re willing to buy at whatever happens to be the prevailing price for the stock. If you have a specific price in mind, you can set a limit order specifying the price you’re willing to pay. If the stock dips down to that level, your order will be automatically filled. Limit orders can be left open for a single day (a day order) or indefinitely (good until canceled). After you’ve bought a stock, you can instruct your broker to sell it if the price drops to a level you specify (a stop loss order). That’s a kind of insurance; it means that no matter what happens to a stock’s price you’ll never lose more than a specified amount.”

Some may look at this as legalized gambling.  A capitalist is always on the look out to get a better price or better dividend yield.  Dividend yields are based on the price of the stock.  If the stock goes down, the yield may go up.  For example since dividends are in dollar amounts and not percentages, if a $1 dividend is divided by a $20/share price then the dividend yields 5%.  If that $1 dividend is divided by an $18/share price then that dividend yields more at 5.5%.

The sheer volume of trading is staggering.  A local stock broker looked up today’s trade volume.  For August 9, 2011, 9 billion shares traded.