7

Is stock price determined only by the last trade that takes place?

For example, if a stock I own is trading at $3.42, and I place a Sell Limit order for $0.00, will the stock price temporarily dip to $0.00?

Likewise, if I place a Buy Limit order for $100.00 for a stock that is trading at $1.23, will the price spike to $100.00?

Is there some sort of "average price" that is reported on the stock ticker?

Thanks for your help in understanding this!

10

Yes, stock price is determined by the last trade price.

There are always going to be people who have put in a price to buy a stock (called a bid price) and people who have put in a price to sell a stock (called an ask price).

Based on your example, if the last trade price for the stock was $1.23, then you might have the following bid prices and ask prices:

  • bid: 50 shares at $1.20
  • bid: 20 shares at $1.21
  • bid: 30 shares at $1.22
  • ask: 40 shares at $1.23
  • ask: 15 shares at $1.24
  • ask: 45 shares at $1.25

So if you put in a limit order to buy 100 shares at $100, you would buy the 40 shares at $1.23, the 15 shares at $1.24, and the 45 shares $1.25. The price of the stock would go up to $1.25.

Conversely, if you put in a limit order to sell 100 shares at $0.01 (I don't think any broker would allow a sell price of $0.00), you would sell 30 shares at $1.22, 20 shares at $1.21, and 50 shares at $1.20. The price of the stock would go down to $1.20.

5

Stock price is determined by what's being asked for it, and what's being paid for it. The reported price is either a recent average, or is the last price at which a sale actually took place, depending on which you've asked for.

Limit orders are an agreement between you and your brokerage, and have no direct effect on price. When and if their condition is triggered and the transaction takes place, the transaction is what's significant.

3

You can interpret prices in any way you wish, but the commonly quoted "price" is the last price traded.

If your broker routes those orders, unlikely because they will be considered "unfair" and will probably be busted by the exchange, the only way to drive the price to the heights & lows in your example is to have an overwhelming amount of quantity relative to the order book.

Your orders will hit the opposing limit orders until your quantity is exhausted, starting from the best price to the worst price.

This is the functional equivalent to a market order.

0

The answer to each of your questions is no.

  1. Limit orders have no effect on a quoted ticker price. Indirectly a Limit Order could affect a quote price momentarily if the Order was executed. Could because thousands of transaction could take place in a second and your's could be in the middle and be "lost" among the other simultaneous trades.
  2. Quoted ticker prices are not averages; quoted ticker prices are the last ACTUAL transaction price of record.
  3. A record of the price of every transaction is called "Tick" data.

It is important to appreciate that the "quoted" ticker price may be delayed by say 15 minutes, and thus is not "real-time."

  • Quoted ticker prices depend on the service you're using. Some services will happily display "best bid", "best offer", "midpoint", or any sort of average you ask for. Tickers like CNBC's may be delayed by 15 minutes, but tickers that people actually use for trading may be delayed by only a few minutes, seconds, or milliseconds. – dg99 Jul 31 '14 at 17:56

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