[revx]

Great article, thank you. I still don't understand who buys and sells stocks. Is there just that much volume that if I decide to sell at a certain market price, there's guaranteed to be a buyer? Or could I decide to sell at market price but nobody actually accepts the transaction? There's some financial magic at work here that I don't quite understand.

[bonestamp2]

The market price is (basically) the highest price that someone else is bidding to buy at, so your offer to sell at that price guarantees there is a buyer because the buyer's bid for stock at that price is already there when you place your offer to sell.

It can get a little more complicated than that though -- you might be trying to sell 1000 shares and the highest bid might only be for a quantity of 500 so the "market" price for your first 500 shares will be different than the next 500 (unless there are other bids at that same price, which there often are but there's no guarantee on the volume you'll be able to sell at that price).

And that's why they call it a stock exchange... it's just a bunch of people (and companies) making bids and offers to "exchange" stocks at difference prices. When a buyer and a sell agree on a price, you have a transaction (trade). Your offer to sell at market price is just an agreement between you and someone else willing to buy at that price.

[skybrian]

"Market makers" ensure that at any time, there are standing orders to buy/sell that are close to the current market price (the difference is called the spread). If you buy/sell at market price, you are taking an existing offer at their price.

You could also do what they do. Instead of buying immediately at market price, you could enter a lower price and create a standing order to buy at that price. However, if the price goes up, you might miss out on buying the stock at all.

Similarly for selling. You can enter a higher price, but it won't sell if the market price doesn't go up.

Conceptually this isn't so different from what a grocery store does. They offer something for sale and wait for a buyer willing to pay that price. However, margins are much lower and prices change much quicker for stocks.

(Note: I'm not recommending messing with any of this.)

[aeternus]

There is pretty much always someone willing to buy or sell a stock at some price. The best way to think of the exchanges are as a perpetual auction. There is a line of buyers willing to buy shares at all different prices, and similarly there is a line of sellers willing to sell at various prices. Anyone can 'join the line' by entering a limit order at some price.

Buying at market price simply means you immediately buy from the seller offering the lowest price.

It's very rare for an order book to be empty for a particular stock, but you typically do see the bid/ask spread increase as a stock loses popularity.

[gchokov]

You are partially right. What you miss is that there are the so called market makers - exchanges that ensure liquidity. They buy from you and sell to you while managing order books. These are simply trades records that have a key role in determining the price pressures for it go up or down.

[gjvc]

> exchanges that ensure liquidity

"market participants" which provide liquidity on an exchange.

[gchokov]

The exchange itself has a goal to ensure liquidity. Do you really think all your orders are instant because there's somebody on the other side to buy it? I mean, yeah, right - for the very common stocks this is the case, but what about those low liquidity stocks that are still being executed instantly?

[thedufer]

The exchange can't trade on their own platform, it would be a massive conflict of interest. The liquidity is typically provided by market makers, who are given incentives to do so. They also get to capture the spread, which is itself fairly valuable. You don't need a conspiracy theory to explain it.

[abfar]

In addition, the market makers gain profit from this activity by buying at a slightly lower price than the selling price.

[rolltiide]

In the US, the government makes sure the answer to that question is “yes”.

Regulation NMS