Who physically raises prices on the stock market?

[Johnnyjay]

I'm new to investing. I get what the stock market is. It's a trading ground for shares of a company.

I get that when supply goes up, the price goes up. When demand goes down, the price goes down.

My question is, who is actually controlling the price rise and drop?

Lets say that a company is doing great and sells at $50. Everyone wants to buy so demand is going up. 200 people want to buy at $50. Who is actually causing the price to rise? Who is saying, ok the demand is going up. The stock will now sell for $55, $75, $100? I get why a stock rises but I don't get how it's done. It's not the business saying shares should now be x. After supply and demand is determined, who makes the adjustment?

[WindAtMyBack]

Bottom line is that the buyers and sellers of the stock determine the price.

People place orders with a broker to buy or sell. You must go through a broker. The broker sends the orders to the stock exchange. There may be some in between steps but I'll skip those for simplicity.

When the order reaches the exchange, the buyers willing to pay the current price are matched with the sellers willing to sell at the current price. So the sales goes through.

When the number of buyers and sellers at the current price are not matched, then the price will go up or down, depending on how many people are willing to buy at a higher price, or how many are willing to sell at a lower price.

There are very important concepts called "market price" vs "limit order". I won't go into the detail of that though. They have a strong effect on the price.

Physically, this used to take place on a physical stock exchange like the New York Stock Exchange. There are a bunch of people physically located there who are exchanging stock.

Nowadays, much of it is done electronically. Like NASDAQ is all electronic. Although the buyers and sellers may still physically go to a broker to place the order, the trade actually takes place electronically.

I STRONGLY suggest that you do a considerable amount of research before diving into the stock market. The stock market is a dangerous place full of sharks who make their money off people like you. Maybe dip into mutual funds first. If you want to buy stocks directly, start off very slowly with very small amounts of money. If you lose money, consider it the cost of education. You probably WILL lose money at least some times. If you can't handle that psychologically, then you shouldn't be in the stock market. Stick with something lower risk. I repeat, you will probably lose money at least sometimes.

[WindAtMyBack]

Here's a very simplified example.

The current price is $100.
Person A is willing to sell 100 shares at that price.
Person B is willing to sell 100 shares at $110.

Person C is willing to buy 150 shares at "market price" which means they are willing to buy at whatever price the seller will sell for.

First the person selling at $100 will sell 100 shares to person C at $100. Then person B will sell 50 shares for $110. Person B will still have 50 shares for sale at $110.

Now the current "market price" is $110 because that is the most recent transaction.

This happens thousands of times a day with the price constantly changing. The price of the last transaction of the day is called the closing price. This is the price you usually see in the news.

[Johnnyjay]

Thank you. I have placed money in a mutual fund and let it sit without touching it. Im starting to study the topic of investing more though. I realize that I probably sound like a complete idiot asking this question but I did get the concept of the stock market. I just was kind of confused on how the demand caused the market to rise. Thanks for explaining.

[Johnnyjay]

Thank you for taking the time to explain it. I get it. Good explanation.

[WindAtMyBack]

You're welcome. Be careful out there.

Remember that greed is the enemy of investing in stocks. Greed needs to stay far away. You need to be cold as ice and stay completely objective at all times.

[Anonymous]

There's 2 prices one called the "Bid" price and the "Ask" price. The ask price is the current asking price for sellers. While the bid price is the price paid by a buyer to purchase a security. Since the market is always moving, these numbers are always in Flux. When you have a large spread between the two numbers it's typically because the volume is high.

Beyond that there are many many things that affect the price of a stock from technical analysis to fundamental analysis.

The best way to determine price is have the most up to date data on the security you're buying or selling. But since you're knew to investing my best advice to you is to find a source with stock analysts you trust and go off thier expertise for the time being. They're professionals and They're still only right 30% of the time. My second piece of advice is stay away from penny stocks. It's possible you might find the next Amazon stock. But it's more like you're going to find the next bankrupt company. The failure rate is huge for penny stocks. Instead stick to the small cap and above with more of an emphasis on the large cap. Also be realistic about your returns. The largest return I've received this year so far is 52% from Nvdia stock. But that's hardly the avg for me. Statistically the avg stock returns 15% annually. Adjusted for inflation it's closer to 10%. So if you're keeping that pace you're pacing the market and that in itself is pretty good. Warren Buffet they say lifetime he's avg'd. 22%. And the most successful hedge fund I've read is 66%. But they spend millions on data to give them thier edge. So keep your goals realistic and trade within your means (don't trade with anything you can't afford to lose) and you'll be just fine.

Good luck man!

[BarryLiverstone]

The market determines the price. People will bid at a certain price and certain amount of shares and if there is someone willing to sell the transaction occurs.

[Johnnyjay]

It's still confusing me though. Lets say someone wants to buy at $50 but there are no shares. They are willing to pay $60. That dosent mean the price will rise to that.

So if let's say there are 20 shares held and 0 available. If 10 more people want to buy for $55 then the price will rise?

I don't know maybe I'm just confusing myself thinking about it.

[BarryLiverstone]

As I said it’s transactions:

First transaction: someone buys 20 shares for $50. At this point the stock is $50.

Second transaction: someone buys 20 shares at $55. At this point it’s worth $55 a share.

20 people put in a bid at $60 but no one wants to sell at $60. It’s still $55 (the last transaction sets the market price)

Third transaction: someone covers a short position fearing the price rise at $57., now the price is $57.

20 people want to buy at $40 but no one wants to sell. The market price is $57.

[Johnnyjay]

I think I'm understanding it better. Thank you.

[Johnnyjay]

Thank you for taking the time to explain.

[BarryLiverstone]

You are welcome. Best advice is to set up a fund and rely on financial professionals to invest your money

[abc3643]

It's a continuous fluid auction. Sellers always establish the price just like in the real economy.