What Is the Balance Between Buyers & Sellers? - Candlestick Patterns Explained by TechniTrader®

The Roles of the Most Important Stock Market Participants

There are many Stock Market Participants buying and selling at the same time in the Stock Market. For every stock purchase, there is a seller; for each buy, there is a sell. The role of the Market Maker is to balance the buying and selling.

There are huge Pension Funds, medium-sized funds, small funds, and tiny funds. There are well-managed funds and poorly managed funds. There are investor groups, Individual Investors who are wealthy, and Individual Investors who are just making ends meet. There is the Odd-Lot Investor who buys just a few shares, and the Options Players and Futures Players. There are also the Market Makers, who are the savviest Day Traders on the planet.

Market Makers are in this to make money for their company, but they must abide by the rules. They typically do not want to ever be holding a position at the end of the day. Their responsibility to the market is to “make a market” by stepping in if there is no buyer or seller. The rest of the time, they are buying and selling just like any other Professional Trader. If someone places a market order, they can to some extent dictate the price of that order based upon supply and demand. However, the popular notion that Market Makers are “out to get the little guys” is inaccurate. The reality is that most Retail Traders aka “the little guys” trade in 100–500 share lots. It would be impractical for the Market Maker to chase such small orders because there would be no profit in it for them.

There is also something far more important that has happened to the Stock Market and the Market Maker’s role in the past few years. Nowadays, most stock orders are routed and executed automatically. It is estimated that about 80% of all transactions are fully automated. These orders originate from many different venues, exchanges, Alternative Trading Systems (ATSs), Electronic Communication Networks (ECNs), and foreign markets. This means that your order is matched with the opposite required order to fill however not by a Floor Trader for a Market Maker as was the case in the past, but with a computer program that matches up the orders and fills them automatically. Sometimes new Beginner Investors and Traders place stop losses incorrectly and are taken out of the trade, and they mistakenly think this may have been done by the Market Maker. There are hundreds of millions of shares traded every day, and there are billions of orders placed every day. One 100 share lot order is lost in such volumes.

If you are taken out of a trade due to an incorrect placement of a stop loss, it was due to the millions of other traders who are trying to buy or sell that stock. For the most part, you are totally unaware of those millions of other traders. It may also be that you are using a Retail Online Broker that fills your order out of their inventory of stock. This occurs frequently with small-lot orders placed with brokers that offer extremely low execution fees and make up the difference with slippage on the spread.

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Trade Wisely,

Martha Stokes CMT

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