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I know that a stock price (like any price on a free market) is determined by supply and demand: If there is more demand than supply for a certain stock its price will raise and vice versa.

However, my question is who really moves the price? Is there some mechanism that lowers price if there is no buy order in a certain amount of time?

This answer to a similar question states that

There are now an overwhelming number of sell orders (limit and market). All of the bids (buy orders) near current price are taken out. If no new buyers come in at current price, price shifts down to buy orders on the order book at lower prices. At the same time, sellers with limit orders lower the price of their sell orders. This process continues (matching of orders and share price drop) until equilibrium is reached between aggregate selling and buying volume at which time price levels off.

My understanding is that the order book is basically a list of prices someone would accept to buy/sell for. But doesn't this only happen if someone really fills an order at a lower/higher price (a limit order?).

If I go to a broker's website, check the price and think a certain stock is too expensive and I will not buy, does this move prices at all (supposed everyone would do this and not fill limit orders)?

In an offline (consumer) market the situation is usually that a retailer does not get offers that differ from the price. He lowers it if noone is buying.

Bob Baerker
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dtell
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2 Answers2

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Stock price is a function of supply and demand which changes the balance between buyers and sellers. When there are more buyers than sellers, there is more demand than supply and price will begin to rise as sellers as sellers demand more for their stock.

When buyer demand wanes, price will level off and trade in a narrow range. Should supply exceed demand, price will head down.

A simple example:

Suppose the ask price is $50.00. If someone buys all of those shares at $50.00 and no new sell orders come in at $50.00 then the ask price becomes the next higher sell order in the order book, say $50.02.

If someone buys all of those those shares offered at $50.02 (or the seller cancels their order), then the quote moves up to the next available price, say $50.05. Price will continue to rise until equilibrium is reached between buyers and sellers.

As the ask price moves up due to sell orders being filled, the bid price will also increase as those placing limit orders to buy increase the price that they are willing to pay.

Bob Baerker
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  • Thanks for your answer, that is very helpful! A few questions: "then the ask price becomes the next higher sell order in the order book, say $50.02." what if there are none? If noone fills limit order but everyone just buys at $50.00, intuitively I'd say there is high demand and the price should raise. But if I understand you correctly, the price would not change in this case? – dtell Feb 04 '21 at 14:36
  • Am I correct that supply and demand is not about any absolute quantities but about the ratio of buyers and sellers only? In this case a very low-volume stock should be able to change dramatically in price even with very few people trading. – dtell Feb 04 '21 at 14:38
  • I think my main confusion is/was that in consumer retail (candy bar as the other answer calls it) the fact that noone is buying lowers the price (since this is the indicator of missing demand). That's why I thought time could be a factor. – dtell Feb 04 '21 at 14:41
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    @dtell - 1) ..."then the ask price becomes the next higher sell order in the order book, say $50.02." what if there are none? Stocks on major exchanges have market makers and they are obligated to make a market in the stock (offer to buy and sell stocks, usually at least 100 shares). 2) If everyone is buying at $50 and they take out all of the sell orders at that $50 then the ask price moves up. At the same time, some of the buyers attempting to buy at $50 who did not get shares at $50 will raise their bid price. – Bob Baerker Feb 05 '21 at 00:52
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  • The number of buyers and sellers is irrelevant. One buyer for 1,000 shares has the same effect as 10 buyers of 100 shares. Supply is more selling volume buying volume Demand is more buying volume than selling volume. It's the aggregate excess of one over the other. I'd disregard most of the other answer, particularly the candy. It's no good for you :->)
    • – Bob Baerker Feb 05 '21 at 00:53