Why Does a Stock Go Down in Price When There is a Big Sell Off?
You are absolutely correct when you state that there has to be a buyer
when there are sellers. The number of shares sold of a particular
stock on a given day has to equal the number of shares purchased of
that stock on that day. On the stock market, this is referred to as
the "volume".
The relationship between the number of goods sold and the number of
goods bought holds in any market, not just the stock market. The
number of ski jackets sold by a retailer must equal the number of ski
jackets purchased by customers.
However the price of ski jackets doesn't necessarily stay the same.
The retailer may decide to have a sale (which can be considered a sell
off) on the jackets if it's July and the demand for ski jackets is
low.
The stock market works in a particular way. To use an example from a
recent event, suppose a major pharmaceutical company (we'll call them
Company A) just had its supposed new wonder drug banned by the FDA.
Shares in that company at the current price are now less attractive to
both current Company A shareholders and those considering purchasing
shares in Company A. This will cause those interesting buying the
stock to demand a lower price to accept Company A shares (known in
stock market lingo as the "bid price") and those interesting in
selling Company A shares to offer a lower price in order to get rid of
the shares (known as the "ask price"). Eventually a buyer and seller
will agree on a price (meaning that the "bid" and "ask" are identical)
and shares will be sold. This price will naturally be lower than the
price the shares were selling for before the bad news came out.
