What *really* makes a share price move?

[Tommygun66]

Ok so I know the official answer is supply and demand, e.g. if buyers outweigh sellers then the share price should rise, but if we take a very liquid market as an example, say a bluechip stock like Vodafone, if I want to buy those shares I can no problem, and if I want to sell them I can no problem.

Both of these transactions have equal and opposite parties, someone to sell me the shares when I want to buy and someone to buy the shares when I want to sell. So given that the buyers and sellers are in a state of equilibrium, what is it that *really* drives a share price up or down? Is there something somewhere monitoring the number of orders, which feeds through to the price boards?

Thanks.

 

[Rhody Trader]

Prices move on changes in demand and supply, not specifically on transactions. If selling interest disappears, prices will tend to rise until it comes back. If buying interest goes away, prices will tend to fall until the buyers re-emerge.

There are two ways buying/selling interest disappears. One is when the other side overwhelms existing orders at current levels. For example, if a market is bid at 100 and offered at 101, if a lot of buying comes in and takes out all the offers at 101 then the next highest offer price becomes the new offer, effectively moving price up.

The other way opposing interest goes away is from orders being pulled. If all the 101 offers are pulled, even without a buying of buying coming in, price will move higher.

Markets can move very fast when orders vanish, which is basically what happened in the Flash Crash.

 

[Tommygun66]

Ok thanks. So with reference to your example, if all the buyers come in and take the offers at 101, who/what decides what the next (higher) offer price will be and how does this feed through to the price board?

It's also like a gap in the market; who/what decides what the 'new' price is once its gapped?

 

[Rhody Trader]

Ok thanks. So with reference to your example, if all the buyers come in and take the offers at 101, who/what decides what the next (higher) offer price will be and how does this feed through to the price board?

It's also like a gap in the market; who/what decides what the 'new' price is once its gapped?

There's no singular "who". The current bid/ask quote is reflective of where market participants have their orders placed. The highest bid and the lowest offer are the current market. If either is taken out, then whatever the next one out is becomes the new level. This could come from a market maker or it could come from an individual, fund, etc.

 

[DionysusToast]

Understanding Liquidity and Market Pullbacks

Read the section on floors & ceilings

 

[TheBramble]

Understanding Liquidity and Market Pullbacks

Read the section on floors & ceilings

The lad wants to be a trader, not a builder. No good plumbing the depths of the internet just to tap articles and plaster it all over this thread for a new joiner.

 

[DionysusToast]

I was just trying to cement his understanding. Lay the foundations, so to speak...

 

[Tommygun66]

Thanks, that was a useful article, although he does say: "There are ZERO buy limit orders above the current price and there are ZERO sell limit orders below the current price"...surely that can't be completely true (that's what stop losses are for aren't they?) but I get what he is saying overall.

 

[Rhody Trader]

Thanks, that was a useful article, although he does say: "There are ZERO buy limit orders above the current price and there are ZERO sell limit orders below the current price"...surely that can't be completely true (that's what stop losses are for aren't they?) but I get what he is saying overall.

It's true. A limit is an "or better" order. If current price is above a sell limit it must be filled. Likewise, if current price is below a buy limit it must be filled. Thus, there can never be any standing sell limits below the market or buy limits above the market.

 

[jacknapier]

But there can be buy stop orders above the current price ... I can only assume this is what I'm seeing when I see buy/sell orders above/below the current price.

 

[Rhody Trader]

Right. Stops have to be set in a worse off position than current market price. Thus, a buy stop must be above and a sell stop must be below.