An interesting question - I'll try to answer it in pieces:
Common knowledge seems to be that the market is neutral, ie for every buyer there is a seller and for every winner there is a loser. It's not quite that exact as when you place a buy trade you may be buying off someone who is just closing for a profit even though price may have further to go
Theoretically, It actually is the case that for every loser, there is a winner, and vice-versa. It is true that you can buy stock XYZ from another individual who could be selling it at a profit. However, if the stock is still going up, then the concept of
opportunity cost arises - the individual's a loser in the sense that he lost the ability to make more profit.
At what point in the process might you actually be buying shares from the company that put them on the market for the original purpose as a way of transferring investment money to the company - who sells shares on behalf of the company or are the shares just present in the system for the market maker to make use of?
I don't think anyone can ever buy shares from the company itself if the company puts them on the market for the purpose of raising capital. In order for the company to increase its float, they must go to an investment bank who would underwrite more shares. The investment bank then purchases these shares from the company (at a large discount from the market price, most likely) and sells them to clients on their books or on the market. Keep in mind, bankers know traders at other firms, so it could be possible for bankers to sell shares to market makers before the market even trades them. But I am sure goldman cannot issue more shares of a company and sell them to other goldman traders to make a market of those shares as this would raise the whole "conflict of interest" issue.
On sell days, doesn't the market maker have to keep offering shares even though they will make a loss on the day?
This is true. Market makers have to, no matter what, make a market in their designated stocks. But they don't necessarily have to end at a loss all day. Most stocks don't continuously go down - there are several retracements along the way. Market makers would often not be bidding a lot on a stock they see is falling rapidly. Once they see a large amount of sell orders being executed, then they start bidding and buying all the stock at a low price. At this point, they are in a loss. However, since there are no sellers left, the price starts to retrace and the market maker starts to liquidate their position (hence the term "volume blow-off"). The VWAP really works in their favor!
Hopefully I've been right about what I've said, but if not, someone should clear it up
🙂
