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I have very little understanding of stock markets/ share prices, etc. I have done some very basic investing- just through a third party, where the actual trading is done for me by the third party, but I'm keen to find out more/ get a better understanding for how it all works.

My understanding is that the rises and falls of a company's share prices are generally tied to how well that company is performing, how profitable it is, etc (yes, I know there are more factors involved than this, but just in very general, high-level terms, for sake of simplicity).

I know that markets can be very volatile, move a lot in a short space of time, and that share prices are constantly moving.

My question is: what is the actual physical cause of a share price increasing/ decreasing?

Is it simply a supply & demand thing- the number of people buying/ selling that particular stock at a given time?

i.e. if 100 people own 10 shares each in company A, with the price of an individual share at £1, and 50 more people decide to also buy shares in company A at £1 per share, does the share price increase because of the increase in demand? Similarly, if 10 people decide to sell the shares they own in company A, does the share price decrease because of the decrease in demand?

Obviously the reasons why people decide to buy/ sell their shares will be influenced by a multitude of things- company making larger than expected profit/ loss, company involved in some scandal, increase/ decrease in demand for products company produces, widespread virus outbreaks, etc.

In short, is a company's share price all down to how attractive it appears to be to own shares in that company?

What are the factors involved in how much a share price changes? Is it just the magnitude of the event that caused the change? Or, the magnitude of increase/ decrease in demand?

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  • Though more extensive, this is pretty much the same question someone else asked today. I'll post the same answer and leave it up to the locals as to whether they want to merge of close one question or the other.
    – Bob Baerker
    Mar 4, 2020 at 14:05
  • Ah, apologies if it's the same as what someone else asked- I did have a look at the suggested similar questions when posting, and didn't see the other one there. Maybe the mods can merge it if they deem it to be similar enough.
    – Noble-Surfer
    Mar 4, 2020 at 14:15
  • No need to apologize. Similar may not necessarily mean duplicative so the mods will deal with it if need be.
    – Bob Baerker
    Mar 4, 2020 at 15:23

2 Answers 2

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The stock price you see listed is the price of the last trade executed on the stock exchange. It doesn't mean that you will actually be able to buy or sell the stock at that price.

A stock market is a place which brings buyers and sellers together. People place buy offer "I want to buy X of this stock for at most $Y" and sell offers "I want to sell X of this stock for at least $Y". The stock exchange looks for matching offers and performs their trade.

The exchange will then publish the price at which they did that exchange. This service is merely an information. It serves as a guideline for what prices buyers and sellers should set in their offers if they hope that they get executed.

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  • Only thing missing from this answer is the word 'auction', which most succinctly describes the mechanics at play.
    – Grade 'Eh' Bacon
    Mar 4, 2020 at 16:32
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    @Grade'Eh'Bacon I think that using the term "auction" would mislead most of the audience. Most people reading "auction" will think of an open ascending price auction, which isn't really what happens on a stock market.
    – Philipp
    Mar 4, 2020 at 16:33
  • If a stock last traded at $100/share, but nobody's willing to offer more than $1/share, and people would be willing to sell for $5 share but have no buyers at that price, should a price graph show that the price is holding steady at $100, or report the price as having fallen to $5? What if the $5 seller leaves the market, leaving $10 as the lowest ask price, without any trades having executed?
    – supercat
    Aug 25, 2021 at 20:12
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The market is an auction. Volume moves price

If the current price is $50.00 by $50.05 with a size of 40x50, it will take the purchase of 5,000 shares to take out all of the shares offered at the ask price of $50.05. Those 5,000 buy side shares could be 50 people buying 100 shares each or one person buying 5,000 shares. The number of buyers is irrelevant.

If no one else comes in to sell shares at $50.05 (new orders) then the ask price will become the next higher priced sell order on the order book. If it is $50.10 then the quote changes to $50.00 x $50.10.

If someone were to then come in with a buy order at $50.05 then the quote would become $50.05 x $50.10. As long as buying pressure keeps taking out the ask volume then price will continue to rise. When it buying pressure fades, price will cease rising and will remain static. When this process reverses, share price will drop.

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