if someone else has to buy your stock when you sell it, isn’t stock being bought at the same time as it being sold?
In: Economics
It is. You are agreeing on the new price. And so are n-thousand trades at the same second, which determine the new price for the next second.
It’s more that if more people want to buy the stock than sell the stock the buyers need to offer a higher price to tempt more holders to sell to them. While if more people want to sell than buy the sellers need to offer a lower price to tempt more people to buy.
This is why the price of GameStop got so crazy. Before the price was dropping and dropping so people were short selling. Part of short selling is you sell stocks and then have to buy them back later. If the price has gone down you make a profit. But you **have** to buy them back no matter what. So a bunch of people brought stock and then refused to sell. Leaving the shorters having to offer more and more money to break those diamond hands and get the holders to give in and sell.
Let’s say you and a group of people want to buy stock, but no one is selling. So I stead you basically place an order for the future. You publicize your intent to buy some amount of stock at a given price. And so do the other people.
But because you’re individuals with different appetites for profit, tolerances for risk, and desired timelines, you’ll be asking for different prices.
Now introduce the sellers, they come in, see your buy orders, and fill them. Naturally they’ll fill the buy orders offering the most money first. But as those orders are filled, the cheaper ones become active.
So, quite literally, as more people sell, the cheaper the stock gets because the buy orders are filled high to low.
Another way this can happen is on the other side.
As you can have buy orders described above, you can have sell orders too. And as buy orders are filled high to low, sell orders are filled low to high. If a lot of people want to sell on short time frames, then they’ll want their sell orders to be the first to be filled, meaning they have to be cheaper than everyone else.
So as more people want to sell, the sell orders get cheaper and cheaper.
The market is more complex than that, it is not a 1:1 trade. You also have companies buying back their own stocks at a premium. You have options traders (sellers and buyers) essentially betting if a stock will rise and fall by a certain amount by a certain date. You have hedge funds buying massive chunks of market segments indiscriminately influencing price by volume. But no a stock value does not instantly drop when it is sold! If you have 5 people that will buy X stock for 25$ and you sell your 1 share when it is trading at 24$… the stock will remain the same at 24$, or possibly rise to 25$ until all 5 buyers get their desired stock. Supply and demand basics.
It doesn’t necessarily drop when sold. Stocks are bought and sold all the time while maintaining stable prices. It drops when a lot of people sell at once.
When you have more sellers than buyers, the price gets driven down because if you want your stock sold, you need a lower price than the other guys. It’s the opposite of when there are more buyers than sellers, which drives prices up.
To illustrate in principle:
People line up to buy stock.
One bids $24.00
The second bids $23.99
Stock is Sold at $24.00
Now the best bid is $23.99
The market is currently willing to pay $23.99 for the stock. The price dropped.
Stocks can also rise as theyre being sold. Where more people want to sell a stock than buy, it drops in value but when more want to buy than sell, price will rise. There is always a buyer and a seller in each transaction. Price movement up or down is to equalize demand on both sides of transaction.
Good observation! The reason this happens is because it doesn’t work like you think, where two people kind of “find each other” in the market and transact with each other.
Instead, people are constantly submitting *buy orders and sell orders*. Each order has a price that they’re willing to take or give.
When people sell, they take the highest buy order that they’re willing to accept. As more buy orders get filled, the highest buy order goes down until it balances out. We call that point the stock’s price!
If you want to see this in action, look up financial “depth charts”. They can show you buy and sell orders in real time. You’ll see that the asset’s “price” is the point at which the buy and sell orders meet!
That’s exactly right. There is no buy without an equal sell. It’s more accurately called “trading”.
But here can certainly be more people trying to buy than there are people trying to sell. But a billion people trying to buy Berkshire stock for $1 doesn’t mean much.
What really matters is the price at which the trade happened.
Not necessarily. The value can go up too when a stock is sold. Every transaction can change the price higher or lower, and every transaction has a buyer and a seller.
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