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They say the stock price is determined by what the public is willing to pay for a given security. But the public never seems to have the option to raise or lower the price of a stock. For example, if someone decides to purchase a mutual fund there is no option to change a bid price, there is only the option to buy or sell at the existing price.

So who is making the price changes? Is it the money managers of the mutual fund? Is it the large hedge funds?

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    You are wildly overthinking it. It's like buying a house on your street. Make an offer - it may be accepted or not. – Fattie Feb 15 at 0:10
  • It is though. Every time you buy or sell you change the price. The new price is the price that you bought or sold at. – user253751 Feb 15 at 11:45
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    @user253751 But that doesn't help OP to understand why his purchase doesn't seem to change the price. The real reason is that when he buys some small quantity e.g. 100 shares at $1, there could have been 1,000,000 shares being offered at $1 and now there are 999,900, so the offered price remains the same. Ordinary members of the public are simply too small to make a noticeable difference. – JBentley Feb 15 at 12:02
  • Average investors do not get to change the price directly. Only market makers can change the bid and ask price. One can nudge the price up or down a bit by buying or selling a lot. – stackoverblown Feb 15 at 12:31
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    @stackoverblown - `Average investors do not get to change the price directly. Only market makers can change the bid and ask price.' That is 100% incorrect. – Bob Baerker Feb 15 at 18:21
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They say the stock price is determined by what the public is willing to pay for a given security.

Yes, the market is an auction.

But the public never seems to have the option to raise or lower the price of a stock.

No. The fact that the market is an auction means that traders determine the price. If there is more buy volume than sell volume then price rises (and vice versa).

If you want the trade now, you trade at current price (NBBO). However, you are free to place a buy order below current price or a sell order above current price.

For example, if someone decides to purchase a mutual fund there is no option to change a bid price, there is only the option to buy or sell at the existing price.

Since the NAV of a mutual fund is determined by the closing value of its assets, then yes, the auction has no role here because the NAV is a derivative determined by the closing value of the funds holdings.

However, there's nothing stopping you from placing limit orders as explained above.

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  • Do you have too much text in your last quote block? It seems the first part is from the question but the second part is your answer. – Kat Feb 14 at 23:03
  • @Kat - It's no excuse but IRL events today distracted me from detail. Thanks for catching that. – Bob Baerker Feb 14 at 23:22
  • tsk, tsk, no bounty here! :) – Fattie Feb 15 at 0:10
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    ETFs are traded like stocks and though similar, they are not mutual funds. Mutual funds can only be purchased at the end of each trading day at the calculated NAV. Once upon a time, Fidelity Select funds priced hourly but haven't owned/traded mutual funds for 25+ years so I don't know if there are any EOD pricing exceptions now. And @Fattie, not even a gold star? Or maybe just a participation award? :->0 – Bob Baerker Feb 15 at 2:59
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    " If there is more buy volume than sell volume then price rises (and vice versa)." - This doesn't seem accurate to me. It's not about absolute volume but rather volume relative to the order book. If there are 100 bids at $100 and 1000 offers at $101, and there are 100 sales and 200 buys, the price will fall rather than rise even though the buy volume is larger than the sale volume, because the 100 sales will exhaust the available bids while the 200 buys will not exhaust the available offers. – JBentley Feb 15 at 18:24
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Mutual funds trade differently than stocks. A mutual fund is a collection of small pieces of a lot of different things. The price of a share of a mutual fund is the price of all that stuff.

For things like stocks and ETFs you can put in whatever orders you want. If nobody else wants to make up the other side of that transaction then your orders wait until someone does (or until they expire) As an example, see how regular individual traders were recently able to substantially influence the price of a few stocks such as gamestop.

If you want to trade now, you get whatever price someone is willing to buy or sell at right now. If you are okay with waiting you might be able to set the price yourself.

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Too obvious to really be an answer, but... When you kick a mountain, why doesn't it move?

Unless you're someone like Warren Buffet, you simply don't have enough money to significantly affect the price of a stock all by yourself. But if stock ABC is currently trading at $100, you can certainly place an order for shares at $95. If enough other people do that, and the people who hold shares of ABC want the $95, that becomes the new price.

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  • Rather short on details, particularly in regard to how the mountain moves from $100 to $95. – Bob Baerker Feb 14 at 22:19
  • Indeed. Look at the effect of Elon Musk's Bitcoin purchase this month. – Jontia Feb 14 at 23:06
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    This confuses 2 separate concepts. Having an affect on the price (like Musk) is not the same as bidding with a different price. The question is about how one bids with a price different than the current price. If very few players have their hands on the toggles then it isn’t quite correct to say the market dictates the stock price. – Cybernetic Feb 15 at 0:13
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    @Cybernetic: If that's what you meant to ask, then you really need to re-write the question. But surely the answer to that is equally trivial? If you want to buy ABC at $95, and it's currently trading at $100, you just put in an order with your broker to buy at $95. If the price drops before your order expires, you get the stock, otherwise you don't. – jamesqf Feb 15 at 17:53
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    @Cybernetic There is nothing to stop you bidding at a different price. But if you bid $95 and there are 1,000,000 other bids at $100, why would I sell to you when I can sell for $100? When this answer says "and the people who hold shares of ABC want the $95, that becomes the new price", it means that $95 will become the new price when all the bids at prices between $95.01 and $100 have been exhausted and now your $95 is the best offer available. So this answer does address your point. – JBentley Feb 15 at 18:18
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stock price is determined by what the public is willing to pay for a given security

yes, the market is an auction

the public never seems to have the option to raise or lower the price of a stock

debatable. the public can influence the share price, but a discontinuous jump in price doesn't happen immediately without major amounts of buying/selling pressure underpinning the move.

there is no option to change a bid price

false. anyone can place a limit order on securities such as stocks and options. The market decides whether or not the transaction is fulfilled, though.

retail traders can bid a price that's lower than the MVPS (market value per share)

likewise, sellers can ask for a price that's higher than the MVPS.

their orders won't necessarily ever be filled.

e.g., if you place a limit order on a share of a stock at say $100, and the stock is trading at $105, it's unlikely to execute because no one wants to sell their share to you at $100 when everyone's able to sell their shares at $105. If someone in error set a limit sell price at $100, though, it's possible that share could go to you for $100, but this would be a rare event.

there is only the option to buy or sell at the existing price

that is known as a market order. that might be true of some of the mutual funds through your broker, in which case you can call your broker and ask them if there's a way for you to trade ETFs, which should allow you to place limit orders. when it comes to individual stocks and options using my two brokers (Robinhood and ETrade), I have complete freedom to set limit orders, or even schedule them for a later date. but that doesn't mean that they'll ever get filled.

who is making the price changes

the invisible hand

Is it the large hedge funds

large financial institutions can have the power to move stocks, and in many cases they own the majority of outstanding shares, but ultimately everything comes down to "how desirable is this stock right now? how much am I willing to pay for one share? what will be my price target before I sell? is the company well positioned to succeed and meet my alpha requirements?". that's the type of questions going through investors' minds when trading in the market. that includes both small investors as well as large investment firms.

sudden, intense desires among institutions or the public to buy long or short a specific security are what propel that stock's price upward or pressure it downward. in the event of an upward breakout, eventually the price will be bid up to and settle onto a price point at which momentum is halted because no one is willing to purchase shares above that price. in the event of a downward breakout, the price will fall to possibly even comically low levels, at which point buyers will see opportunities to open a position, and the price will stop falling at the pricepoint where the demand meets the supply. these individual decisions cumulatively represent the supply and demand dynamics seen in the market.

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  • The invisible hand is thus too simplistic an analogy for market forces, since hubs in the network (like any complex network) have an overwhelming influence on how things shift. Not every agent is a truly active participant, rather 90% of market players are almost passive, while the hedge funds and other major players are active. – Cybernetic Feb 15 at 1:22
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I'll offer up a different perspective to the other answers which hopefully will make clear why a small investor can't ever make a noticeable difference. This will use a fictional example with made up numbers, but the principle is the same for the real markets.

Imagine we have Foobar Ltd, a company listed on a stock exchange. At any given time there is an order book which contains a list of all buy/sell (technical term: bid/offer) orders. The order book is essentially a list which summarises for each given price, how many shares are being offered for sale or purchase at that price. For example, at a given moment of time the order book might look like this:

Bids:   [1,000,000 @ $100.00] [2,000,000 @ $ 99.99] [1,500,000 @ $ 99.98]
Offers: [1,300,000 @ $100.01] [2,100,000 @ $100.02] [1,800,000 @ $100.03]

Now, you, as an ordinary investor, might try do one of the following to lower the price of Foobar Ltd:

  1. Sell some shares to use up the existing orders and force the price to the next set of orders.
  2. Place a bid order at a new, lower, price.

Let's try scenario 1. You, being a small investor, decide to sell 100 shares using the available orders. The best price you can currently get (from the bid offers on the order book above) is $100. So you sell your shares and now the order book looks like this (changed entry tagged with < >):

Bids:   <  999,900 @ $100.00> [2,000,000 @ $ 99.99] [1,500,000 @ $ 99.98]
Offers: [1,300,000 @ $100.01] [2,100,000 @ $100.02] [1,800,000 @ $100.03]

There are simply too many other bids at $100.00 for your sale to have made any noticeable difference. You'd have had to sell 1,000,000 shares for $100,000,000 to reduce the bid price to $99.99.

Now let's try scenario 2. You decide you're not happy about the fact that you have to pay $100.01 to buy 100 shares of Foobar Ltd (using available orders) or $100.00 (placing an order of your own at the current price), so you decide to place a bid at $99.99. Now the order book looks like this (changed entry tagged wtih < >):

Bids:   [1,000,000 @ $100.00] <2,000,100 @ $ 99.99> [1,500,000 @ $ 99.98]
Offers: [1,300,000 @ $100.01] [2,100,000 @ $100.02] [1,800,000 @ $100.03]

Your tiny order has marginally increased the orders available at $99.99, but there are still the 1,000,000 bids at $100.00. Anyone selling their shares will sell the first 1,000,000 at $100.00 before they even look at your order. So again, your action has made no noticeable difference.

But, throw in a few 10,000s of other small investors all making the same decision as you (or a few large institutional investors) and now the price will change because collectively the action is large enough to make a difference.

In summary:

"They say the stock price is determined by what the public is willing to pay for a given security."

This means that the price is determined by what the "public" is willing to pay collectively, not what you, by yourself, are willing to pay. Note that "public" here includes what you are thinking of as public (ordinary investors) but also institutional investors who buy/sell in bulk, and market makers (those that profit from placing simultaneous bid/offer orders with a price spread, and help to create liquidity by making sure there are always orders available).

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    Your explanation is completely apropos for a highly liquid security with a very, very large order size across all prices at/near NBBO and it also has only a one cent bid/ask spread. However, there are many far less liquid stocks with much wider B/A spreads and any market participant can become the temporary market maker on one or even both sides if his 100 shares order raises the NBBO bid one cent and/or lowers the NBBO ask one cent. – Bob Baerker Feb 15 at 18:44
  • @BobBaerker Yes, you are right. I guess when I formulated this answer I assumed the OP was referring to highly liquid stocks (e.g. as are found on major stock markets), since the premise of the question was that an ordinary investor can't affect the price. But I acknowledge that the OP might not have been aware of the distinction. – JBentley Feb 15 at 18:52
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Bob and Matt wrote excellent answers about Net Asset Value, which I think is the at the core of your question. I just wanted to address as simply as possible the auction aspect of the market. You asked:

If stock price is determined by what people are willing to pay then why is changing a stock price never an option for an average investor?

If you bought it, that's (at least) what you were willing to pay; you may have been willing to pay more which makes the current price a good deal. That's you participating in the market auction. You could also have not bought. Not buying is also market information that the price may be too high.

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  • Too simplistic. The average investor does not choose individual stocks. They send a lump sum to a broker who manages a fund; it’s the fund (their algorithms) who chooses which stocks to go for. The average investor is agnostic to this process. – Cybernetic Feb 15 at 22:38
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    It doesn't matter what you think is the process for most people. If you buy something, whatever that price you paid, that's what it was worth to you. It doesn't matter if you are totally negligent in the price setting process, you, or your money, participated in price setting. I'll agree that too much money is being passively invested and is not properly price sensitive but I don't think that's the point you're making. And ultimately it doesn't matter because those dollars still participated in the auction, you could have chosen a different allocation for your money. – quid Feb 16 at 0:41
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    I didn't tell you the point you're making, I said I don't think you're simply taking issue with passive index investing as a concept. I think passive index investing is a growing problem because too much money flows in to the market with zero regard for price and fundamentals. If that's the point you're making I agree there is too much "buy regardless of price" activity overwhelming the auction; and those dumb dollars participate in the price setting of securities. – quid Feb 16 at 4:24

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