Liquidity Question (Buyers/Sellers)

[iamnewuser911]

If all buyers bought everything from sellers, and there are no sellers left in the market, and no buyers want to take profits.

Will price remain (stagnant at the peak) or drop?

Or will it even change?

Change to find attractive price for people to come in again?

 

[BONECRUSHER]

If all buyers bought everything from sellers, and there are no sellers left in the market, and no buyers want to take profits.

Will price remain (stagnant at the peak) or drop?

Or will it even change?

Change to find attractive price for people to come in again?

If the buyers are still enthusiastic about buying more (putting in constant orders), price will continue to rise until sellers finally come back into the market because they can't resist selling at even higher prices. If the buyers had stopped putting in more orders at the same time all sellers were wiped clean...price should in theory go stagnant...until one side gets more enthusiastic about getting in or out.

 

[newwurldmn]

If all buyers bought everything from sellers, and there are no sellers left in the market, and no buyers want to take profits.

Will price remain (stagnant at the peak) or drop?

Or will it even change?

Change to find attractive price for people to come in again?

Price will stay the same. Like the housing market in your neighborhood. There are no buyers and sellers at the moment to create a mark.

You are talking about an illiquid market where there is no market maker.

 

[BONECRUSHER]

Price will stay the same. Like the housing market in your neighborhood. There are no buyers and sellers at the moment to create a mark.

You are talking about an illiquid market where there is no market maker.

For the housing market...is the question no buyers and no sellers or is the question there is no buying or selling (no transactions)? Maybe no one wants to sell in the neighborhood, but buyers are knocking on doors, home owners are starting to change their minds about selling at a higher price...prices must rise without any transactions taking place (yet). In his question about liquidity in the stock market he didn't mention if the buyers were satisfied yet, even after cleaning out all available supply at the time. Wouldn't the market maker keep raising price until sellers came back in from the sidelines?

 

[spread'em]

If buyers bought from sellers and we reached an equilibrium then price would reach it's prefect point of 'value'. But then if one buyer placed an offer 10 ticks above market and one of the original sellers put a bid in 10 ticks below, you suddenly have a spread and the market will try and find value again.

This can easily tie in with the example of the housing market. Often if the home-owners (sellers) are content and don't really want to or need to move then their 'Ask' would be higher than the perceived 'value' and the buyers would need to match that or place their Bid and wait for the housing market to move in their favour (interest rate rises etc).

 

[BONECRUSHER]

If buyers bought from sellers and we reached an equilibrium then price would reach it's prefect point of 'value'. But then if one buyer placed an offer 10 ticks above market and one of the original sellers put a bid in 10 ticks below, you suddenly have a spread and the market will try and find value again.

This can easily tie in with the example of the housing market. Often if the home-owners (sellers) are content and don't really want to or need to move then their 'Ask' would be higher than the perceived 'value' and the buyers would need to match that or place their Bid and wait for the housing market to move in their favour (interest rate rises etc).

If the buyer placed an offer 10 ticks above and the seller 10 ticks below market, wouldn't that cause a transaction immediately...so no spread? I thought a spread was the reverse...buyer 10 ticks below and seller 10 ticks above?

 

[Smart Money]

If all buyers bought everything from sellers, and there are no sellers left in the market, and no buyers want to take profits.

Will price remain (stagnant at the peak) or drop?

Or will it even change?

Change to find attractive price for people to come in again?

It depends on whether price is defined as transactions (it usually is). Or bid and ask. In your scenario, the ask would be above all bids. And bids would climb until ask is met. One could argue that the price is always the ask value. So the asking price fluctuates, but it isn't realized until the bid meets it.

 

[TradeCat]

It's an auction.

 

[K-Pia]

If all buyers bought everything from sellers, and there are no sellers left in the market, and no buyers want to take profits.

Will price remain (stagnant at the peak) or drop?

Or will it even change?

Change to find attractive price for people to come in again?

It's called a MANIA.
Price becomes extremely expensive.
Supply is mainly unlimited. There will be sellers.
Because peoples (BIG GUYS) see opportunity in that MANIA.
But if you got no sellers anymore. Then there is no market anymore.
So the price don't move. Because no transaction will ever occur.

 

[Lee-]

If all buyers bought everything from sellers, and there are no sellers left in the market, and no buyers want to take profits.

Will price remain (stagnant at the peak) or drop?

Or will it even change?

Change to find attractive price for people to come in again?

I think some replies have touched on this.

Strictly speaking if there are no buyer's and no sellers, there is no market. Strictly speaking if the price is low enough you will find a buyer and if the price is high enough you will find a seller. What will actually happen when liquidity drives up (meaning there's no buyers/sellers at the current price), the spread will widen until such a time that the offer is low enough to entice a buyer or the bid is high enough to entice a seller. This is effectively why lower liquidity instruments (where there are a smaller number of people interested in buying/selling at the "price") have a larger spread. As there are more buyer/sellers, there are also more people willing to buy or sell at different price points. More price points will get you to tighter spreads.

In short, there's never a lack of buyers or sellers, there's only a lack of buyers or sellers at a particular price, so you search the "price" both up and down until you find a buyer and seller and that defines the spread or the BBO.