eli5 How is the ticker price of a stock decided when there are multiple trades of a stock happening at the same time?
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Theres multiple buying requests (bid) and selling requests (ask) happening. If you are trying to buy a stock, your trading program will look for a seller thats offering as close to that price as possible and vice versa
Are there multiple trades happening at the same time? Usually it’s just a lot of trades in a short period of time but they can still determine which one was last.
Let’s say the current price of a stock is 19.85
The only people willing to sell puts sell stock for 20 and it goes in the system
The only buyers puts buy stock for 19.50 and it goes in the system
The only way it moves up or down is…
Until a buyer decides “hey I think this stock will be worth 20 or more in the future I’ll buy it from you” is when the average price changes higher between the last bought price and current sell price depending on how many shares left are being traded for the current price.
For example, 1000 shares being sold at 20. But someone only buys 500. So the average price would still remain the same until someone buys the remaining 500 to push the prices higher.
But let’s say someone buys the full 1000. Now the next sellers will sell their shares of 10000 at let’s say, 20.25. The current price will now change higher because the sell and buy price have now shifted to something like
“sell price 20.25”
“buy price 20.00”
“Average price = 20.15”
or something like that.
Also works the same in reverse.
Most popular stocks change price fast because most of the market (70%) is from bots trading back and forth. Although some unpopular stocks may not move as fast or at all.
Options trading can also affect the market price too because if a whale (rich person) buys a bullish position or bearish position in the millions, many people and bots will see that trade and will change their trading strategy based on new information. It’s pretty crazy how deep it can go.
The trades execute in order, they don’t happen at the same time. So the stock price is the last price someone paid to buy it.
Technically it’s based on the last trade registered. Not so technically it’s based on what market makers want it to be. In other words the ticker price is based on shennanigans.
easy. there is no “at the same time” only one transaction is executed at a time and their timing is tracked precisely using gps and atomic clocks
nothing really happens at the same time …
trades are executed in order, technically each trade is a tick on the ticker.
but for active stocks this needs to be aggregated
At any given time there are multiple bids to buy a certain number of stocks at a given price as well as multiple offers to sell various amount of stocks at certain prices. The orders are filled until there are no more matching prices, many orders do not get filled. The ticker price for the stock is just what the price is between the lowest offer and the highest bidder.
For high volume stocks this difference is usually very small and there is a large amount of stocks available to exchange, but for low volume sometimes the spread can be quite large with a very small amount available for each bid/offer so someone making a large market order (as in buy x amount at whatever available price) they may end up buying significantly above or selling significantly below what the ticker price was at.
A lot of these bids and offers can sit around for weeks or months. If there is suddenly a massive and unexpected increase in the amount of volume of trades they may “halt” a stock for a few minutes to sort out all the trades to make sure they’re done properly and in order before resuming. During which the ticker would also be paused and wouldn’t update until they resume trade.
There isn’t one price for a stock. There’s a bid price (what someone is willing to pay) and an ask price (what someone is willing to sell) when those overlap trades are executed. The last price is the price of the last executed trade. The last price is what’s typically shown in the ticker.
Source: fintech software engineer for over 15 years.
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