Does spending money at a company affect their stock price?

Question

I just don’t understand how it works…when I hold shares in a company and I spend money there, am I technically making a very very small amount of that money back?

ALSO:
what is the simplest way to explain how stock prices increase then?

In: Economics

Answer 1

> ALSO: what is the simplest way to explain how stock prices increase then?

At a stock exchange, for any given stock, people form two lines: people who hold the stock and want to sell some shares, and people who want to buy shares.

At the front of the seller line is the person willing to sell it for the least amount per share. At the front of the buyer line is the person willing to spend the most per share.

If the buyer’s price is at least the seller’s price, they will transact until either the seller has no more shares for sale at that price and leaves the line, or until the buyer no longer wants any more shares at that price and leaves the line. If the buyer is offering $2 per share and the seller is asking $1.50 per share, they’ll meet in the middle and transact at $1.75 per share.

This process continues until there is no longer an agreement between the highest buyer’s offer and lowest seller’s offer.

A person can ‘cut’ in line by offering to buy at whatever the lowest offered price, or sell at the highest price a buyer is offering. This is where a lot of the movement in a stock price happens happens.

If more people are offering to buy the stock at whatever the lowest price is, the lowest-priced sell offers are going to be exhausted first, leaving only the higher priced ones. This makes the price go up.

If more people are offering to sell at whatever the highest buy offer is, those higher offers will be exhausted first, leaving only the lower offers. This makes the price go down.

The mechanics of what makes people want to buy or sell is complicated. A stock going up in value is going to attract people who will want to quickly buy and resell at a higher price for an easy, no-strings-attached profit. A stock going down will make people try to get money back now before it’s even lower, even if it’s less than what they paid initially.