The stock market is a double auction market. That means you offer your stock for sale at one price, and some unknown entity offers to buy the same amount of the same stock for a specific amount of money per share. If a mutual price is agreed on, the transaction takes place. Chances are you will never know who or what the entity on the other end of your stock transaction was.
Individual investors, people just like you, may buy your stock. Individual investors are men and women who use their own money to buy and sell securities, such as stocks or bonds. They may buy stocks for their individual retirement account, or for their personal investment account. They may buy stocks for their kids as part of a trust to provide resources for their college years, or they might just want to roll the dice with some excess funds and see if they can score a big return. As of the turn of the 21st century, approximately 78.7 million Americans owned stock, either through individual shares or as part of a mutual fund, according to the Investment Company Institute.
The entity that bought the stock you sold might have been an institutional investor. An institutional investor is a person or organization that makes stock trades of sufficient size to warrant receiving a discount on its trades. Institutional investors include pension funds, insurance companies, charitable foundations and mutual fund companies.
The entity on the other end of your stock sale transaction might be a market maker, particularly if your stock was an over-the-counter stock. Market makers are companies who stand ready to buy the stock of a particular company at a publicly stated price during normal business hours. Market makers provide an important market for stocks in companies that may not trade frequently, as they help maintain the liquidity of the market place. Investors are more likely to buy a stock if they are certain there will be a ready buyer when the time comes to sell.
Occasionally a company will buy back its own shares in the open market. They may do so to increase demand for their stock by reducing the available supply. They may wish to increase the potential reward for each remaining shareholder. The board of directors may just think the company's own stock is a better investment than other available option, such as putting their excess cash into the bank at a low rate of interest.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.