I wonder why something can drop in value by large percentages in a single day.
It seems to me that if stop losses are triggered, then the resulting buy will slow the decline. No?
Also, if people are riding the down trend, then who is buying so they can sell? Who will buy when the thing is free falling?
Can anyone enlighten me on this?
It’s supply and demand. If lots of people want to sell and not many people want to buy then the price needs to be lower so that more people think it’s worth buying.
Buyers has to equal sellers or else you wouldn’t be able to buy/sell. So it’s just about finding the price where they become equal.
For rare stocks, it is possible to be stuck with them and unable to sell. For the big companies, there’s always buyers and sellers, it’s just about the price that they think the trade is worthwhile.
When you’re dealing in the underlying market, i.e. the actual company shares, not derivatives or synthetic markets based on the company share prices, a stop-loss order to sell cannot force a buyer in the market to buy at the price you set to sell. Traders often see this as “slippage” - the stop-loss is executed at a price lower than they set their order.
This is a situation where it is arguably beneficial to trade a derivative or synthetic market. Here the market maker does not have to find a buyer since they are simply closing a position which actually more resembles a bet. Whether slippage occurs here depends on the speed at which prices are moving and the risk exposure of the market maker company. But not on finding a buyer for a share that’s dropping like a stone.