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How Buyer and Seller Orders Move Stock Prices

Article Quant Q&A · Author: ren
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Summary

The document explains why a stock price can change even though each trade has both a buyer and a seller. A transaction occurs when participants agree on a price, while their differing valuations, expectations, and motives affect which prices they are willing to accept. As beliefs or willingness to trade change across many participants, successive transactions can occur at different prices. The discussion also points to market depth as a way to inspect displayed buying and selling interest at different price levels.

One answer invokes the risk-free rate and the possibility of arbitrage to explain why holding and reselling an asset at an unchanged price may be inconsistent with positive financing rates. Another emphasizes supply and demand, including expectations and profit taking. These are intuitive explanations rather than a full account of price formation: the document does not distinguish quoted bid and ask prices from trade prices or explain how order-book changes, liquidity, and information interact. Its example is illustrative, not empirical evidence.

Key ideas

  • Every completed trade has both a buyer and a seller, but changing willingness to trade can move the price of successive trades.
  • Participants may value the same stock differently because of expectations, analysis, or position motives.
  • Market depth shows the prices at which participants are willing to buy or sell.
  • Financing rates can inform arbitrage reasoning about an asset’s price over time.
  • The discussion is intuitive and does not fully explain order-book mechanics.

Tags

EquitiesMarket microstructureExecution
Full text
# when we sell someone buys, why the price changes then


# when we sell someone buys, why the price changes then












I have a silly question: if I buy stocks then someone sells it and vice versa. But then why does the price changes?

## Answer by user34971 (score 1, accepted)

https://quant.stackexchange.com/a/49533

Let's say the risk free rate is greater than zero. But the argument below can be reversed in the case when risk free rate is negative (as is the case these days):

If there is someone silly enough to want to buy a stock at a price of $S_0$ at $t=0$ and then sell it again at time $T>0$ at the same price of $S_0$, then that person is giving money away for free. So the price must change over an infinitesimal interval $dt$ to avoid arbitrage, and all rational investors will try to avoid being arbitraged.

Think about it. The answer lies in the risk-free rate / bank-account.

The non-quant answer is: greed! :) I will always want to sell something at a higher price than I bought it for (which does not mean I'll get what I want).

## Answer by Jorisdrees (score 1)

https://quant.stackexchange.com/a/49536

In my opinion the simple answer is supply and demand but this would assume we are rational and never buy when it's too expensive or sell when it's too cheap. Investors, Speculators, all types of different agents have motives to buy and sell the way they do.

i'll try to explain it intuitively:

People expect a stock to become more valuable in the future and want to pay a certain price for this right now. On one hand People who are on the buying side naturally want what they consider the best price (Technical, fundamental, or just plain "It will go up" analysis). The Sellers are usually motivated in this scenario by profit taking from the positions they already hold. Then price is set when the buyers match the sellers.

Let's say you bought stock at 50.00€ today and Trump is just tweeting the market is going to go up today expect big gains!. Some people will take this at face value and you assume your stock is worth atleast 52.00€ now. On the other side a buying person might think 52.00€ is a bargain after all it's a great company and trump just tweeted the markets are going to go up so they buy it from you.

Repeat this for thousands of incremental individuals holding stock and you get price movements.

If you have a bloomberg terminal you can use look up any stock ticker and the function "MDM" which shows the market depth in which people are willing to buy and sell at a certain price. Give me a few moments i'll be back in the office soon to provide a screenshot for you.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.