Stock Market Plunge
Category: Blogging

I spent many hours studying for my brokers license series 7. I never got a chance to take the test before E*Trade closed their doors here in Sacramento, CA. I will tell you a little bit that I do know about the market.

1) Market Makers do just that - They make the markets. Because they have so many shares of stock under their control, when they sell large amounts of stock, it effects the price.

Here is how it works. The more shares on the market, the lower the value. Compare this to the value of the dollar. And on the other hand, the less shares on the market, the more valuable. This is the basic supply and demand model. Of course we care about whether the companies have made money, whether there is a dividend paid to us each year, and whether the stock is affordable.

Many splits are done to make stock affordable. Check for the stock history to be certain that is the case on a split.

2) Trades are placed manually and automatically. A trade that is preset is called a (Limit) order. Someone who invests has the ability to set a limit that will be triggered into action when a stock hits a certain price. This could be a sell or buy order. You can use this to help reduce loss, or capitalize on gains. If I want to buy stock but I think it is over valued, I might place a buy limit at the price I think that is the true value. Should the market price drop to that amount at any time of the market hour, the automatic limit order will be put into action.

So you ask WHAT HAPPENED TO THE STOCK MARKET when it fell 1000 points? I am going to make a logical guess based on my study of the market. Someone made an error in their sell order. (Why there isn't a cap on the number of shares that can be sold at any given moment by an institution or individual I will never know) This Billion shares flooded the market, caused a drop in stock price, which in turn set off limit orders, causing a panic among the manual operators, who sold shares that again flooded the market, causing more limit orders into action. You can see what they mean by the market having a mind of its own.

All this from a single error. Should never happen.

Just have one more thing to say: Hey SEC, can you please automate a cap on the number of shares that can be bought or sold to a reasonable amount, and can you make all software contain a confirmation screen of the order.....

One that says....ARE YOU SURE YOU WANT TO SELL 30 BILLION SHARES? YES or NO