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There's always about the same amount of money bidding above and below the current price. The market maker keeps it in balance, by matching buy bids and sell bid
by kangnkodos 6y ago
There's always about the same amount of money bidding above and below the current price. The market maker keeps it in balance, by matching buy bids and sell bids which are close to the middle of the range. This matching process sets the price and makes sure that there is always liquidity.
The price may shoot way up, or plunge, but this process almost always works, so there's almost always liquidity.
- betterunix2 6y agoIt is not hard to find low-liquidity symbols, though typically these are smaller companies or unusual products of some sort. I have seen brokerages declare some symbols to be restricted in some way (higher margin requirements, or not eligible for margin at all) because of poor liquidity. Market makers do not always swoop in to provide liquidity and may not be willing or able to trade large enough numbers of shares to satisfy investors during extreme circumstances (e.g. during a crash or a short squeeze).
- mcv 6y agoEven if short-sellers are forced to buy 140% of the existing stock, while much of the stock is in the hands of people who refuse to buy? There's way too many buyers and too few sellers. And the buyers are forced to buy.