Why Does a Stock Market Crash?

List of 5 Causes Explained in Detail

For new Individual Investors and new Retail Traders, a Stock Market crash is a very scary event. They don’t know what to think, and they wonder what they should do—hold and wait, or sell and run. Many times, the information they hear on the news is inaccurate or misleading.

Here is a list of tips for details on a better understanding of a Stock Market crash:

  1. There are two sides to every stock transaction, a buyer and a seller to maintain an orderly market. The structure is designed so that there will always be a buyer and seller, as Market Makers step in or High Frequency Traders (HFTs) acting as Market Makers offer stock out to complete the order.
  2. For every buyer of a stock order, there must be someone willing to sell stock of an equal amount. Sometimes, orders are grouped to meet the demand of the buyers. For example, there may be a buyer who wants to buy 1,000 shares of stock and sellers who want to sell 100 shares, which is not enough to fill the order. Since this is all automated now, the Market Maker computers will go and search for sellers who equal 1,000 shares, and this may be one seller or many sellers.
  3. When there are too many people who want to sell their stock and there are no or very few buyers, the stock price will fall because there is a lack of buyers. When prices are falling, most people are afraid to buy a stock. The result is that stocks tend to fall faster than they move up.

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Trade Wisely,

Martha Stokes CMT

Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses

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