Buyers/Sellers On Balance

Buyers/sellers on balance describes an order imbalance in a market at a specific point of time. The phrase also describes traders whose activity over a period of time trends predominately toward buying or selling, rather than a balance between the two.

Buyers/sellers on balance always suggests a situation in which more orders of one type outnumber orders of the opposite type. If a current market or issue has sellers on balance, more traders have entered sell orders than buy orders, causing an order imbalance. Conversely, if a market or issue has buyers on balance, more traders have entered buy orders than sell orders. Under normal conditions, these imbalances work themselves out quickly. In some situations where trading cannot take place, however, buyers on balance or sellers on balance conditions can persist until the resumption of trading provides enough market liquidity to bring trades back into balance.

Investors may be considered buyers or sellers on balance over a period of time if they purchase more shares than they sell or vice versa. A buyer on balance may see a number of potentially profitable opportunities in the market or may simply be saving diligently for retirement. A seller on balance may fear a market downturn or may have reached a logical point at which to take profits out of existing investment positions.

Market orders require only that a broker fulfill them at the best available current price. These orders make up the vast majority of orders filled on the market and they occur at a security’s current bid price for sell orders and at the current ask price for buy orders. Trade imbalances tend to be transitory situations because markets can typically adjust to a changing demand environment. On an exchange, market makers or specialists can tap into reserve shares to even out imbalances during the trading day. Unless imbalances become so severe that the exchange suspends trading, a typical situation fitting the description of buyers or sellers on balance most likely would occur before the market opens or at the expiration of an option contract, when circumstances impede liquidity.

The speed and volume of market orders in a relatively liquid exchange makes large imbalances unlikely to remain in place for any significant duration. For example, as news of an impending buyers on balance situation spreads, some stockholders may use the rising prices triggered by rising demand as an opportunity to sell shares they would otherwise have held, adding liquidity to the market.