The key to understanding why prices fall even though every seller needs a buyer lies in the dynamics of bid and ask prices in the market.
1. Bid and Ask Prices: In any market, there are two types of prices at any given moment—the bid price (what buyers are willing to pay) and the ask price (what sellers are asking for). The difference between these is known as the "spread."
2. Market Orders and Limit Orders: Buyers and sellers place orders in different ways. A buyer might place a market order, agreeing to buy at the current lowest ask price, or a limit order, specifying the maximum price they're willing to pay. Similarly, sellers use market orders to sell immediately at the current highest bid price or limit orders to set a minimum acceptable price.
3. Price Movement: When there's a surge in selling, it's not that there are no buyers, but the immediate willingness to buy at the current or asking price diminishes. Sellers, especially those using market orders to sell quickly, start to accept lower bid prices. This action, when replicated across many sellers, drives the price down.
4. Perception of Supply and Demand: The notion of "more sellers than buyers" generally means there's more willingness or urgency to sell among holders of the asset than there is interest or urgency to buy. This doesn't mean a literal count of individuals but rather the volume of assets being sold versus bought. If sellers are more desperate to offload their assets than buyers are eager to acquire them, sellers will lower their prices to make their offers more competitive.
5. Market Sentiment: In periods of panic or pessimism, many sellers are willing to accept lower prices to exit their positions. Buyers, anticipating that prices may fall further, place lower bids. The market clears at these lower prices, reflecting a downward movement in price.
In essence, the "more sellers than buyers" phrase refers to the pressure or urgency to sell at any given price point, not the absolute number of individuals on each side of the transaction.