How does a stock price actually go up or down?

There’s been further exchanges since I started writing this post (apologies if I’m repeating something).

It’s very simple.
Price moves up when someone is willing to buy it at a price higher than the last sale price.
Price moves down when someone is willing to sell it at a price lower than the last sale price.

Every transaction has a buyer and a seller.

A better question is, why would someone pay more than the last price ? A reasonable answer is that the person thinks that they will be able to sell it at a higher price sometime in the future. Is this the only reason? Nope. A person buying now and crossing the spread to buy it may be closing a trade started earlier by selling first (shorting).

The market consists of a very large and diverse group of people (participants). Very few of them are watching price during the day. Very few of them consider price movements at all. All participants buy and sell through the market exchanges that facilitate every buy/sell transaction.

Movements in price is governed by supply and demand, but you must understand that this in happening across every time frame in every session. Every micro second that a market is open prices move due to forces of supply and demand.

Supply and demand is nurtured by new and old information. Previous price movement is information that is used by some market participants. Company fundamentals, management guidance and comments, director transactions, current and future corporate and economic outlook are many of the information sources that govern supply and demand. Crowd behaviour, crowd sentiment, personal fear and greed add to the sources that govern supply and demand.

The order book is not the market. The order book is a micro second snapshot of the visible orders in the market. The order book doesn’t show all the orders and certainly doesn’t show the correct order sizes (iceberg orders etc).

 

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