An idea about LIQUIDITY on reuest
Updated
LIQUIDITY
Many people assume that if the price of something is ₹10 and they have 1,000 of that stocks , they should expect to be able to sell them for something around ₹10,000. Such an assumption may hold much of the time, but it doesn't always. Worse, the cases where it fails to hold are often those where it would be relied upon most heavily. Such an assumption should thus be considered dangerous.
In a liquid market, the quantity of a something that people would be willing to buy at something close to the market price will be large relative to the quantity that people would seek to sell in the short term.
If at some moment in time one person in the market was willing to immediately buy 500 shares at ₹ 98 and another was willing to immediately buy 750 at ₹ 97, someone seeking to sell 1,000 shares could immediately receive ₹ 97.50 for them (selling 500 to the first person@ ₹ 98 and 500 to the second at the rate of ₹ 97, who would then be ready to buy 250 more from the a person who was willing to sell for ₹ 97). Such behavior would be in line with what many people's assumptions.
In an ill-liquid market, however, the quantity of something that people would be willing to buy near market price could be surprisingly low. This is more often a problem in the marketplace of things like collectibles than of stocks, but the same thing can happen in the stock market. If there's one potential buyer for a stock who thinks it's overpriced but has potential and would be worth ₹95, but that person only has ₹9500 to spend, and everybody else thinks the stock wouldn’t be worth more than ₹10/share, then until people sold a total of 100 shares the price would be ₹95, but after that the price would drop instantly to ₹10. There would be no "cushioning" of the fall. If the person with 1,000 shares was first in line, he'd get to sell 100 shares for ₹95 to the afore mentioned seller, but would be unable to get more than ₹9000 for the remaining 900.
A major danger with markets is that markets which are perceived as liquid attract people to the buying side, while those which are seen as illiquid repel people. The danger in the latter is obvious (having people flee a seemingly-illiquid market will reduce its liquidity further) but the former is just as bad. Having people flock to a market because of its perceived liquidity will increase its liquidity, but can also create a "false price floor", causing demand to appear much stronger than it actually is. Unless real demand increases to match the false price floor, the people who buy at the higher price will never be able to recoup their investment.
You're thinking of this as a normal purchase, but that's not really how stock markets operate.
First, just because there are shares of stock purchased, it doesn't mean that there was real investor buyer and seller demand for that instrument (at that point in time). Markets have dedicated middlemen called Market Makers, Exchange, Specialists (BSE or NSE), who are responsible to make sure that there is always someone to buy or sell; this ensures that all instruments have sufficient liquidity. Market Makers and specialists may decide to lower their bid on a stock based on a high number of sellers, or raise their ask for a high number of buyers.
During an investor rush to buy or sell an instrument (perhaps in response to a news release), it's possible for the Market Maker / specialist to accumulate or distribute a large number of shares, without end-investors like you or I being involved on both sides of the same transaction.
Many people assume that if the price of something is ₹10 and they have 1,000 of that stocks , they should expect to be able to sell them for something around ₹10,000. Such an assumption may hold much of the time, but it doesn't always. Worse, the cases where it fails to hold are often those where it would be relied upon most heavily. Such an assumption should thus be considered dangerous.
In a liquid market, the quantity of a something that people would be willing to buy at something close to the market price will be large relative to the quantity that people would seek to sell in the short term.
If at some moment in time one person in the market was willing to immediately buy 500 shares at ₹ 98 and another was willing to immediately buy 750 at ₹ 97, someone seeking to sell 1,000 shares could immediately receive ₹ 97.50 for them (selling 500 to the first person@ ₹ 98 and 500 to the second at the rate of ₹ 97, who would then be ready to buy 250 more from the a person who was willing to sell for ₹ 97). Such behavior would be in line with what many people's assumptions.
In an ill-liquid market, however, the quantity of something that people would be willing to buy near market price could be surprisingly low. This is more often a problem in the marketplace of things like collectibles than of stocks, but the same thing can happen in the stock market. If there's one potential buyer for a stock who thinks it's overpriced but has potential and would be worth ₹95, but that person only has ₹9500 to spend, and everybody else thinks the stock wouldn’t be worth more than ₹10/share, then until people sold a total of 100 shares the price would be ₹95, but after that the price would drop instantly to ₹10. There would be no "cushioning" of the fall. If the person with 1,000 shares was first in line, he'd get to sell 100 shares for ₹95 to the afore mentioned seller, but would be unable to get more than ₹9000 for the remaining 900.
A major danger with markets is that markets which are perceived as liquid attract people to the buying side, while those which are seen as illiquid repel people. The danger in the latter is obvious (having people flee a seemingly-illiquid market will reduce its liquidity further) but the former is just as bad. Having people flock to a market because of its perceived liquidity will increase its liquidity, but can also create a "false price floor", causing demand to appear much stronger than it actually is. Unless real demand increases to match the false price floor, the people who buy at the higher price will never be able to recoup their investment.
You're thinking of this as a normal purchase, but that's not really how stock markets operate.
First, just because there are shares of stock purchased, it doesn't mean that there was real investor buyer and seller demand for that instrument (at that point in time). Markets have dedicated middlemen called Market Makers, Exchange, Specialists (BSE or NSE), who are responsible to make sure that there is always someone to buy or sell; this ensures that all instruments have sufficient liquidity. Market Makers and specialists may decide to lower their bid on a stock based on a high number of sellers, or raise their ask for a high number of buyers.
During an investor rush to buy or sell an instrument (perhaps in response to a news release), it's possible for the Market Maker / specialist to accumulate or distribute a large number of shares, without end-investors like you or I being involved on both sides of the same transaction.
Note
in the case of power mech, the key is, " perhaps in response to a news release"so find it above and wait wait wait for news release.
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