Wikipedia:Reference desk/Archives/Miscellaneous/2017 October 20

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October 20

How do stock prices move?

I understand the theory behind why stock prices move. Basically, supply and demand and all the factors that affect that. However, if there is a known price x which is quoted for all traders/investors, why would anyone ever pay more or less than that and therefore how does a price ever actually move? --Polyknot (talk) 14:39, 20 October 2017 (UTC)

The quoted price is just the latest price to be reported. Trading is still negotiated between the buyer and seller, and they are free to negotiate any price they want. If the seller believes they can get a better price than it is currently selling for, they ask for more. If they aren't getting any offers to buy at the current price, they lower the prices until people start buying.This describes it fairly well. The factor that leads to a certain price tends towards values close to a company's true Valuation combined with anticipated growth, though lots of factors can drive a market one way or another. --Jayron32 14:45, 20 October 2017 (UTC)

Okay, so it's as I suspected: buyers and sellers are free to negotiate. Whereas from my limited experience with play money accounts it seemed that one could only ever buy/sell at the quoted price. Especially in forex where I haven't seen the equivalent of a bid/ask. Doesn't the way things work, with individuals negotiating prices, leave the doors open to arbitrage though? --Polyknot (talk) 14:53, 20 October 2017 (UTC)

When normal people trade through an online exchange, there is generally an underlying bid/ask book. Such a book consists of a list of people who are willing to sell X shares at Y price and people who are willing to buy W shares at Z price. If you want to buy, for example, 500 shares of MSFT right now, then you would go through the sellers book grabbing the cheapest prices until you accumulate 500 shares. That might mean dealing with only one seller, or it might mean dealing with many at a variety of prices. The same thing happens if you want to sell your shares right away. If you want to unload a large number of shares then you might end up going deep into the book and getting down into unfavorable prices. Such large transactions can cause the transaction price to swing by a lot. On the other hand, you might get a better price by placing your name in the book and hoping that overtime you will get the price you actually want. There are specialized market participants, called market makers, that help keep the process going by continuously offering to both buy and sell shares (though at different prices). The details of how all this happens is often opaque to the common person who is buying and selling stocks only occasionally. Often, stock trading companies ask higher subscription prices in order to see the underlying bid/ask book. Dragons flight (talk) 15:06, 20 October 2017 (UTC)

• Many stocks change price daily or hourly: Many famous stocks are traded hourly, and their prices fluctuate, while obscure stocks could retain their same price for days or weeks. A big influence is the use of computers to perform "programmed trading" to buy/sell stocks in large numbers and can cause severe price changes. For rare stocks, a pattern of "spin doctors" could generate positive press releases to promote investors to buy stocks upon hype of better performance as indicated in the press releases. -Wikid77 (talk) 08:03, 22 October 2017 (UTC)

There used to be a publication called The Stock Exchange Daily Official List. Under hourly headings it would list the trades at each price, giving the volume of each transaction. You could tell whether the transaction was a "sell" order or a "buy" order because the "sell" orders would be at a slightly lower price (the market maker's "turn" or profit margin). If there were no transactions that day details of the last transaction would be provided. I don't know if this publication is still extant, but the "middle price" (the mean of the "bid price" (offered to sellers) and the "offer price" (offered to buyers) at the close is published in the following day's newspapers. See bid-ask spread and order book (trading). 82.14.24.95 (talk) 13:06, 22 October 2017 (UTC)

Thanks everyone. Dragons flight answered best for what I wanted to know. But does what he said apply to forex as well? Are there bids/asks as well as the spread in forex? --Polyknot (talk) 13:26, 25 October 2017 (UTC)