How does the price of a stock get run up or run down?

Question

So far, I understand that stock price is manipulated by news about a company's profit at its reporting time and product selling success, maybe a little drum rolling for a product. There seems to be some effect from sector growth. But doesnt the price of stock rise because there are investors actively seeking and bidding on the price of a stock? Who sets the starting bids? I notice that some stocks actually start 1 day later at a price $2 above the selling price of the day before in active trading! How does this happen? Is this something were after hours legal compensation trading took place in the form of stock issues by the company at graduated prices? I am attempting to see the rise in the stock market as an auction? Is this the way it is? Is there a scarcity of each stock that is growing in price, a bid to have some of an investor's funds in a particular company because it holds "valuable assets", relatively more valuable assets in product or at least an illusion of such?

Answer 1

Stock Market is a game. In game theoretic terminologies, there are two players one a buyer and the other seller. The seller asks for a price he feels is right for the stock and the buyer bids for a price he feels fit for the stock. When they both agree on a price the transaction takes place. It depends on whether an askers price is considered right enough for the bidder. The asker feels he is getting good value for his sale and the bidder feels he is getting a bargain. This makes the game a zero sum game where after the transaction whichever way the price is bid up one of the players looses what the other player gians. Demand and supply determines the price also. If the ask is high and the demand is low the price will move downwards. If the ask is high and the demand is high the price moves upwards. Then of course there are other factors like scalpers and pyramiding which tend to influence the price. These are unethical methods though scalping may not like arbitragers try to take advantage of the price difference from the normal by shorting or longing stocks. Pyrmamiding is unethical so let me not explain it. Skahhh I will explain it for you. When two brokers get together to inflate price they will make continous buy and sell between themselves at higher prices each time. This will inflate prices also.

Answer 2

There are many ways in which you can place a trade. A limit order, for instance, creates a record on the "orderbook" for that stock at the exchange. The orderbook is a double-ended list stating traders' willingness to buy or sell a certain number of shares at a particular price or better. It's similar to the offer list for eBay auctions, with the difference that there is not only one "winner", not only one item for sale at a time, and as soon as the limit orders at a specific price are fulfilled, the price moves to the next increment. A market order, on the other hand, is fulfilled by the "market maker" for that stock (often a computer program) which looks up the bid or ask price (according to whether you wish to sell or buy the shares) in the orderbook and then executes the trade at that price. The bid price is the highest "buy" price traders are willing to pay ("bid"), the ask price is the lowest "sell" price traders are willing to receive ("ask") for a share of the stock. The market maker follows different priority rules to assign stocks: for this reason some trades are executed before others, partially or at a better price than the limit you placed. The difference between the bid and the ask price is the "spread", which reflects the liquidity of the stock. There is usually a minimum increment for stock prices (eg one penny). To see what an orderbook looks like you may want to have a look at one of the stock information pages on the site of the Swiss Stock Exchange www.swx.com (I think you need paid subscription to access orderbook data on US exchanges).

A misconception I had was that the amount by which a stock "runs up" is proportional on the net amount of shares bought (eg if 1000 shares are bought, the price increases 10 times more than if only 100 shares are bought). Instead, it's generally true thatbig price movements can occur on low volume, and small changes on high volume. Nevertheless, buying erodes the "ask" half of the orderbook and causes the ask price to rise. Similar observations hold in the fall of a stock.

Overnight (or intraday) gaps occur because limit orders are massively canceled and replaced by different prices, as a consequence of news events etc... keep in mind that orders can be placed andcanceled outside of exchange opening times. Secondary of after-hours markets are other markets where similar same rules apply. There doesn't have to be any transaction for price gaps to occur suddenly. The quote isn't the "integral" of transactions or something. It can behave wildly discontinuously.

Answer 3

Stocks are prices by the "Market" no one "sets" the price.

Stock prices are driven by SUPPLY & DEMAND economics. Stock prices rise when more people want to BUY the stock at a given price than want to SELL at that same price. For example assume a stock is currently trading at $10 and 100,000 are looking to SELL the stock at a price of $10 but 1,000,000 want to BUY it at $10. What would happen is only 10% of those people woul get the stock. The remaining people if they still want the stock will have to pay a higher price. So lets say there are 200,000 who want to SELL is at $10.50, maybe not all the 900,000 who didn't get to buy at $10 are willing to psy $10.50. for this example let's assume only half of them do so that leave 450,000 wanting to BUY at $10.50 but remember only 200,000 are available. So the price continues higher until the market finds a balance between buyers and sellers.

For a stock price to go down. The opposite occurs. You have more sells than buyers at the current price so the price falls until a balance is found.

As for "GAPs" in opening trading (stock price starts significantly HIGHER or LOWER than the previous close). This occurs when some event shifts the supply and demand curve. Suppose a stock closed at $10 a share meaning that was the balancing price at the close. But after the close the company reported new that either created more demand to buy their share or more demand to sell their shares. If its good new maybe no one wants to SELL the stock at $10 anymore the next morning. Maybe $12 is the cheapest that any owners are willing to sell at. Therefore the stock will "GAP" up to $12 at the open. If it was bad news the opposite could happen and cause a GAP down.