What does it mean when some one says that today there was a lot of net selling or buying in a stock. What does it mean because for every selling there is also a buying going on then how can you determine a selling or buying ?

How can you calculate average trade price for a stock and what is the significance of it ?

up vote 14 down vote accepted

Consider the mechanic which actually drives the 'price' of a stock.

In simplest terms, the 'price' of a stock is the price at which the most recent trade occurred. ie: if the price of IBM is $100/share, that means the last time someone bought IBM stock, they paid $100.

Above and below the 'spot price', are dozens/hundreds/thousands of buyers and sellers who have placed orders that no one is yet willing to match. ie: if IBM's spot price is at $100, there could still be 10,000 people willing to sell for $101 (called the 'ask' price, for the lowest price someone is currently willing to sell at), and 15,000 willing to buy for $99 (called the 'bid' price, for the highest price someone is currently willing to buy for).

Until someone is willing to buy for $101, then no one will be able to sell at $101. Until someone is willing to sell for $99, no one will be able to buy for $99. Typically orders are placed in the market at a particular limit. Meaning that those orders to buy at $99/sell at $101 are already in the 'system', and will be matched immediately as soon as someone is willing to meet the price on the other side.

Now consider general market economics: high demand drives up price, and high supply drives down price. If the details above for IBM were yesterday, and today some news came out that IBM was laying off employees, imagine that another 10,000 people who held shares wanted to sell. Now there would be 20,000 sellers and only 15,000 buyers. If those new sellers were aggressive about wanting to sell, they would have to drop their price to $99, to match the highest buyers in the market.

Put together, this means that as more sellers enter the market, supply of shares increases, driving down price. Conversely, as more buyers enter the market, demand for shares increases, driving up share price.

As a result of the above, you can say that (all else being equal) if price for a stock goes up, there were more buyers that day, and if price goes down, there were more sellers that day. On the face of it, that is not necessarily true, because you could have the same number of buyers and sellers, one side could have simply decreased/increased their acceptable price to match the other side.

  • So, essentially, you're saying that, in this context, "buyer" means "person who wants to buy" rather than "person who's actually bought something", and similarly for "seller"? – David Richerby Dec 12 '16 at 18:31
  • @DavidRicherby In the context of casual conversation, yes, that's how I would define buyers and sellers: people who have put in orders, whether or not they have been matched on the other side. Also this ignores the idea of people buying/selling different numbers of shares for eachother, but that's not a really relevant distinction here. – Grade 'Eh' Bacon Dec 12 '16 at 18:41

What does it mean when some one says that today there was a lot of net selling or buying in a stock. What does it mean because for every selling there is also a buying going on then how can you determine a selling or buying ?

Generally if the price of stock has gone down compared to previous day, the trend is of selling. As the price can be volatile, there maybe few trades that are above close price of previous day, or below close price of previous day.

How can you calculate average trade price for a stock

It is simple {sum of all [price*quantity]}/quantity.

Related question Equity market inflow meaning

I'm not sure the term actually has a clear meaning. We can think of "what does this mean" in two ways: its broad semantic/metaphorical meaning, and its mechanical "what actual variables in the market represent this quantity". Net buying/selling have a clear meaning in the former sense by analogy to the basic concept of supply and demand in equilibrium markets. It's not as clear what their meaning should be in the latter sense.

Roughly, as the top comment notes, you could say that a price decrease is because of net selling at the previous price level, while a price rise is driven by net buying at the previous price level. But in terms of actual market mechanics, the only way prices move is by matching of a buyer and a seller, so every market transaction inherently represents an instantaneous balance across the bid/ask spread.

So then we could think about the notion of orders. Actual transactions only occur in balance, but there is a whole book of standing orders at various prices. So maybe we could use some measure of the volume at various price levels in each of the bid/ask books to decide some notion of net buying/selling. But again, actual transactions occur only when matched across the spread. If a significant order volume is added on one side or the other, but at a price far away from the bid/offer - far enough that an actual trade at that price is unlikely to occur - should that be included in the notion of net buying/selling? Presumably there is some price distance from the bid/offer where the orders don't matter for net buying/selling. I'm sure you'd find a lot of buyers for BRK.A at $1, but that's completely irrelevant to the notion of net buying/selling in BRK.A.

Maybe the closest thing I can think of in terms of actual market mechanics is the comparative total volumes during the period that would still have been executed if forced to execute at the end of period price. Assuming that traders' valuations are fixed through the period in question, and trading occurs on the basis of fundamentals (which I know isn't a good assumption in practice, but the impact of price history upon future price is too complex for this analysis), we have two cases. If price falls, we can assume all buyers who executed above the last price in the period would have happily bought at the last price (saving money), while all sellers who executed below the last price in the period would also be happy to sell for more. The former will be larger than the latter. If the price rises, the reverse is true.

  • Good point that what the OP has described is not a strictly defined 'technical' term; therefore the meaning is contextually dependent on who said it in the first place. – Grade 'Eh' Bacon Dec 13 '16 at 14:18

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