4 ms·

Thanks for your link. I read it. But does it explain/re-affirm that prices go down when there are more people selling than there are people buying?

by ak39 6y ago

ThePhysicist 6y ago
Typically there are different types of orders as well: https://en.m.wikipedia.org/wiki/Order_(exchange) https://en.m.wikipedia.org/wiki/Order_(exchange) For assets with high liquidity there will always be buyers and sellers, depending on how many are on either side and what their price limits are (if they set any) transactions will occur at different prices. Depending on the order size the price can vary even within a single order (if you need multiple buyers or sellers with different limits to fill it). The market price is just an indication of the current equilibrium price at which there is the most liquidity for an asset. If there are more people that want to sell than people that want to buy at a given price the sellers will have to reduce their ask price to close orders, that drags the market price down. The same dynamic moves the price up when there are more buyers than sellers.
csomar 6y ago
There are exactly as many buys/sells. You can't have more "Sellers". The price can move down, however, without much trading. For stocks with low trading/high volatility it might make sense to give the mid order book price rather than last trade.
- rileymat2 6y ago
  Sure you can have more sellers than buyers at a price, you can’t have more transactions, but limit orders can expire or be partially filled.
- ak39 6y ago
  Imagine a closed off room of 100 traders. There are three sets of people here: a group of pairs doing a transaction, a group of pairs negotiating a strike price, no deals yet, and a final group "sitting on their hands". Only the executed trades are ordered in descending timestamps. The one at the top is the market price. It's the only reliable indicator of what actually got sold and bought. So, in this room, the price of each transaction, from any negotiations, is a consequence of the conviction of each party in the negotiations and eventually the trade. This includes how optimistic or pessimistic they feel about the value of the stock, how aggressive each one's stance about the predicted future price of the stock, how much greed or fear exists in the minds of the traders etc. This is what moves the price. Prices can move just as rapidly (be more volatile) with a few traders and many sitting on their hands as can be the case that prices hardly move with the entire 100 people transacting. Conclusion: what moves prices up or down are opposing beliefs with differing levels of conviction in the minds of the traders.
  - csomar 6y ago
    That's a massive and dangerous over-simplification of the market. The market is really complex and the factors that play in determining and moving the price are inter-mingled in a very complex way. Here are a few ones of the top of my head: - Someone getting liquidated on a big contract and crashing the whole market with him. (see Oil prices a few weeks ago). - Someone trading exotic/complex derivatives. His trades on the stock will not make sense unless you account for his whole trade/structure that he created. He can/does move the market in unusual ways. - Someone trading in a certain way because of taxes. His trades will not make sense if the tax rate was 0%. - Someone laundering money through the market by buying the stock somewhere and selling it somewhere else in a derivative market making his net position neutral and trying in the process to move proceeds from one place to another. This is, actually, a big one. - Someone getting out of position when it would be profitable for him not to. But he has better alpha somewhere else he is going to chase.

Thanks for your link. I read it. But does it explain/re-affirm that prices go down when there are more people selling than there are people buying?

by ak39 6y ago

Thanks for your link. I read it. But does it explain/re-affirm that prices go down when there are more people selling than there are people buying?

ThePhysicist 6y ago

Typically there are different types of orders as well: https://en.m.wikipedia.org/wiki/Order_(exchange) https://en.m.wikipedia.org/wiki/Order_(exchange) For assets with high liquidity there will always be buyers and sellers, depending on how many are on either side and what their price limits are (if they set any) transactions will occur at different prices. Depending on the order size the price can vary even within a single order (if you need multiple buyers or sellers with different limits to fill it). The market price is just an indication of the current equilibrium price at which there is the most liquidity for an asset. If there are more people that want to sell than people that want to buy at a given price the sellers will have to reduce their ask price to close orders, that drags the market price down. The same dynamic moves the price up when there are more buyers than sellers.

csomar 6y ago

There are exactly as many buys/sells. You can't have more "Sellers". The price can move down, however, without much trading. For stocks with low trading/high volatility it might make sense to give the mid order book price rather than last trade.

rileymat2 6y ago
Sure you can have more sellers than buyers at a price, you can’t have more transactions, but limit orders can expire or be partially filled.
ak39 6y ago
Imagine a closed off room of 100 traders. There are three sets of people here: a group of pairs doing a transaction, a group of pairs negotiating a strike price, no deals yet, and a final group "sitting on their hands". Only the executed trades are ordered in descending timestamps. The one at the top is the market price. It's the only reliable indicator of what actually got sold and bought. So, in this room, the price of each transaction, from any negotiations, is a consequence of the conviction of each party in the negotiations and eventually the trade. This includes how optimistic or pessimistic they feel about the value of the stock, how aggressive each one's stance about the predicted future price of the stock, how much greed or fear exists in the minds of the traders etc. This is what moves the price. Prices can move just as rapidly (be more volatile) with a few traders and many sitting on their hands as can be the case that prices hardly move with the entire 100 people transacting. Conclusion: what moves prices up or down are opposing beliefs with differing levels of conviction in the minds of the traders.
- csomar 6y ago
  That's a massive and dangerous over-simplification of the market. The market is really complex and the factors that play in determining and moving the price are inter-mingled in a very complex way. Here are a few ones of the top of my head: - Someone getting liquidated on a big contract and crashing the whole market with him. (see Oil prices a few weeks ago). - Someone trading exotic/complex derivatives. His trades on the stock will not make sense unless you account for his whole trade/structure that he created. He can/does move the market in unusual ways. - Someone trading in a certain way because of taxes. His trades will not make sense if the tax rate was 0%. - Someone laundering money through the market by buying the stock somewhere and selling it somewhere else in a derivative market making his net position neutral and trying in the process to move proceeds from one place to another. This is, actually, a big one. - Someone getting out of position when it would be profitable for him not to. But he has better alpha somewhere else he is going to chase.