How can I figure out how a stock's price would change after I buy shares?

Question

It may seem like a stupid question but I am wondering if there's a way for computing the new price of a stock after buying some shares. Let's assume that I want to buy a 100 shares of a stock of a company X at a price of 30$. Can I know the new price of the stock after I buy the 100 shares? I'm asking this because I know that buying or selling moves the market so how could we know how much is this move?

Answer 1

It is unlikely that buying 100 shares will have any effect on a stock's price, unless the stock's average trading volume is incredibly low. That being said, no matter how many share you buy, there's no way to know what the impact on the price will be, because that's only one factor in how shares are priced. If anyone could figure out the answer to your question then they'd be extremely rich, because they'd simply watch for big share trades and then buy those stocks on the way up.

The market makers who actually execute the trades are the ones who set the prices, and most stocks have multiple market makers trading the stock, so the bid/ask you see is the highest bid and lowest ask. The market makers set the price based on what the trend of the stock is. If, for instance, there's a large number of sell orders against a stock, the market makers will start dropping the bid prices as they fill execution orders, and as they see buy orders increase, they'll raise ask prices as they fill execution orders. The market makers earn the difference between what they paid to buy someone's stock who was selling and what they get from someone else who buys it.

This is a simplified explanation, so pro traders, don't beat me up! (grin)

So, basically, it takes quite a bit of share volume in one direction or another to affect a stock's price. I can guarantee a 100-share trade wouldn't even be noticed by market makers.

I hope this helps.

Good luck!

Answer 2

Stock price is based on supply and demand. Unless the stock you are looking to buy usually has very low volume trading 100 shares isn't likely to have any effect on price. There are many companies that have millions or tens of millions of shares trade daily. For stocks like that 100 shares is barely a trivial percentage of the daily volume.

For thinly traded stocks you can look at the bid and ask size but even that isn't likely to get you an exact answer. Unless you are trading large volumes your trade will have no effect on the price of shares.

Answer 3

It is possible to figure out the next price. Just not for Joe Average.

A stock exchange has a orderbook. This has two sides. One side has alle the buyers, how many shares they want, and what they are willing to pay.

BUYERS:
Name    Shares  Price
Hans    1234    12.45$
Alex    4323    12.44$

The other side has all the sellers, how many shares they got, and what price they are willing to accept.

SELLERS:
Name   Shares   Price
Klaus  5900     12.46$
Ute    2312     12.47$
Obama  230      12.50$

If any buyers and sellers match up, their orders are executed, money and shares are exchanged, everyone is happy.

So the current asking price (the price you have to pay, to get some shares) is currently 12.46$. Let's say you want 6000 shares, for any price. The orderbook now looks like this:

BUYERS:
Name    Shares  Price
Hans    1234    12.45$
Alex    4323    12.44$
YOU     6000    Unlimited

SELLERS:
Name   Shares   Price
Klaus  5900     12.46$
Ute    2312     12.47$
Obama  230      12.50$

Your order is executed, you get 6000 shares for a total of 74,761$ (5900 * 12,46 + 100 * 12,47$). The order book now looks like this:

BUYERS:
Name    Shares  Price
Hans    1234    12.45$
Alex    4323    12.44$

SELLERS:
Name   Shares   Price
Ute    2212     12.47$
Obama  230      12.50$

The new asking price is 12.47$. Congrats, you knew the price in advance. Of course this is simplified, there are millions of entries on both sides, thousands of trades happen every millisecond and you'll have to pay the stock exchange a lot of money to give you all this information in real time.

That's what high frequency traders are doing. They use highly specialised computer systems to exploit differences in stock exchanges all over the world. It's called arbitage. They have to be faster than the other guy. This race has gone on for a few years now, so that the limiting factor starts to become the speed of light.

YOU are not going to benefit, or else you would not be asking questions on PERSONAL finance :)

Answer 4

It depends on many factors, but generally, the bid/ask spread will give you an idea.

There are typically two ways to buy (or sell) a security:

• Limit order, which is you telling the broker to put up your ask for X dollars and take any offer that's X or more.
• Market order, which is you telling the broker to buy the shares you want at whatever price (scrupulous brokers will stop the transaction if the price moves too much after you place the order).

With a limit order, you would place a buy for 100 shares at $30-. Then it's easy, in the worst case you will get your 100 shares at $30 each exactly. You may get lucky and have the price fall, then you will pay less than $30. Of course if the price immediately goes up to say $35, nobody will sell at the $30 you want, so your broker will happily sit on his hands and rake in the commission while waiting on what is now a hail Mary ask.

With a market order, you have the problem you mention: The ticker says $30, but say after you buy the first 5 shares at $30 the price shoots up and the rest are $32 each - you have now paid on average $31.9 per share. This could happen because there is a limit order for 5 at $30 and 200 at $32 (you would have filled only part of that 200). You would be able to see these in the order book (sometimes shown as bid/ask spread or market depth).

However, the order book is not law. Just because there's an ask for 10k shares at $35 each for your $30 X stock, doesn't mean that by the time the price comes up to $35, the offer will still be up. The guy (or algorithm) who put it up may see the price going up and decide he now wants $40 each for his 10k shares. Also, people aren't obligated to put in their order: Maybe there's a trader who intends to trade a large volume when the price hits a certain level, like a limit order, but he elected to not put in a limit order and instead watch the ticker and react in real time. Then you will see a huge order suddenly come in out of nowhere. So while the order book is informative, what you are asking is actually fundamentally impossible to know fully, unless you can read the minds of every interested trader.

As others said, in "normal" securities (meaning traded at a major exchange, especially those in the S&P500) you simply can't move the price, the market is too deep. You would need millions of dollars to budge the price, and if you had that much money, you wouldn't be asking here on a QA site, you would have a professional financial advisor (or even a team) that specializes in distributing your large transaction over a longer time to minimize the effect on the market.

With crazier stocks, such as OTC and especially worthless penny stocks with market caps of $1 mil or less, what you say is a real problem (you can end up paying multiples of the last ticker if not careful) and you do have to be careful about it. Which is why you shouldn't trade penny stocks unless you know what you're doing (and if you're asking this question here, you don't).