Let's assume there's this random company (XYZ)--that few are aware of--is selling stocks and they're doing really well. If their stock price is at $50 and no one is buying, will it still go up?
Do stock prices only go up when people are buying?
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1There are various "prices" like mid price, indicative price etc. so it really depends on what your definition is here, but since the goal usually is to try to sell stuff at that price, you can't really know unless you tried to sell. or buy.– PlasmaHHJan 29, 2018 at 11:09
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1As other answers have said, you're not going to make money on the stock in the (very) hypothetical scenario that nobody is buying. But your question implies that people are selling. You could try to buy up enough of the shares to put yourself on the board - companies that are performing excellently tend to reward their directors.– Christian PalmerJan 29, 2018 at 14:32
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3I am not a regular user on “MoneySE”, but I don’t see why this question seems ill received just because the scenario is so improbable. I like the question, not because I’m learning about “what to do in the case no transactions taking place for a stock” but because the hypothetical scenario is helping the OP (and me) make sure we know exactly what causes a stock price to fluctuate. If you’re going to build an investment strategy with the goal of making Money and making money directly depends on the fluctuations of stock prices - knowing the mechanics of the fluctuations seems like a good idea– Prince MJan 29, 2018 at 22:53
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1In my experience, there are times when figuring out the answer to extreme hypothetical questions can save the person from having to ask 10x as many questions about realistic scenarios, because the answers follow from the extreme cases– Prince MJan 29, 2018 at 23:00
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1Related : Bid-Ask Spread– J...Jan 30, 2018 at 12:29
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12 Answers
Let’s take a step back. Prices have their origin in the fact that there are buyers and sellers. If as you ask “NO ONE” is buying, there is no price that can be reported. No transactions will occur.
Prices only exist when there are transactions to report. The price is literally the last price at which a transaction occurred.
answered Jan 28, 2018 at 21:45
JTP - Apologise to Monica♦JTP - Apologise to Monica
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39@Vic I think you're too hung up on the word "price". No, the price will not change because there have been no further transactions. But the value will certainly change, because stocks represent ownership of a company, and the company itself is performing well and is therefore worth more. Assuming this information is readily available (and assuming all other factors remain constant), then the next time a transaction takes place it will likely be at a higher price.– JBentleyJan 28, 2018 at 22:23
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5@vic Because you're buying ownership of the company, and it is that which gives your stock value, not the fact that it is a stock. Let's say your stock is 1% of the total stocks. In a typical scenario that means you own 1% of the company's capital (assets - liabilities), and are entitled to 1% of the company's profits (either paid out as dividends, or kept back in the business, which means increased capital). But you should certainly factor in the lack of liquidity (ability to sell) when you decide whether or not to buy.– JBentleyJan 28, 2018 at 22:30
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4@Vic Imagine a company that owns 10 apartments and rents them out. You own 10% of the shares. That means that you own 10% of the value of the apartments and 10% of the rental profit. If the company makes $X profit one year, it could choose to pay that out in dividends in which case you would receive 10% of $X. Or it could retain the profits and buy another apartment, in which case you now own 10% of 11 apartments. Theoretically, if enough shareholders banded together you could wind the company down, or force it to sell off its assets (the apartments) and distribute the money.– JBentleyJan 28, 2018 at 22:41
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8@Vic Also bear in mind that your scenario is an invented one. In practice, in the real world, you will always find a buyer at some price for your shares, if the underlying company has value. In a very illiquid market (e.g. a low cap exchange) you might have to accept less than what you had hoped, in order to sell in a timely fashion.– JBentleyJan 28, 2018 at 22:43
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8OP said, in the question, there is NO bid. If you want to change the premise of the question, I’d be happy to change my answer. Jan 29, 2018 at 1:53
What you are describing is similar to what used to happen every night on a stock exchange that isn't open 24 hours (before after-hours trading existed), since after the exchange closes no one was buying or selling. If some incredibly good news came out about a certain company over night, the value of that stock would certainly increase, but the price of that stock was still what it closed at. Of course in the morning when the exchange opened the stock price would shoot up instantly to match its new value.
Your exact scenario is contrived though in that the price can't increase until someone finds out about the company and the fact that its stock is undervalued. If the company is public then everyone can know about the company, and if its private the point is moot since no one can buy the stock unless the owners decide to sell it. There's no such thing as a publicly traded company that isn't being tracked by someone and/or something.
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10@Vic You have to wait for somebody willing to pay the price you want to sell at. Jan 28, 2018 at 23:31
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20@Vic The price isn't some automatic measure of the company's success; it's simply the last price at which there was a transaction for the stock. It's great if you think the company is doing well, but what matters is whether somebody else agrees with you and will pay what you think your shares are worth. As an analogy, I have a painting on the wall here. I may think it's lovely and worth $10,000, but all it is really worth is whatever someone else will pay me for it. Jan 29, 2018 at 3:59
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5@Vic A stock could have a value of 1 billion dollars on the stock exchange (per share), but if you cannot find someone to actually buy the stock from you, that information doesn't give you any money just because you own the stock. As it happens, stock markets on high-cap stocks are usually quite liquid, and you can find someone willing to pay at least within a few % of the posted price. So people treat stock wealth as almost as good as cash wealth (until, of course, it isn't)– YakkJan 29, 2018 at 16:34
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8@Vic
Eg: I have to wait until others start buying in order for the price to go up?is basically the root of the phrase "The market can stay irrational longer than you can stay solvent." Making a winning move in the market often requires being right and having good timing. Being right isn't always enough by itself.– DevJan 29, 2018 at 20:02
The price of the stock can be reported at its bid or ask price or last trade price. No one needs to buy or sell the stock for the bid/ask price to change just like no one needs to buy merchandise from a vendor for them to change their prices.
answered Jan 28, 2018 at 21:59
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7@VIc if noone is bidding/asking there is no price, it's a nonsense question. If noone is selling spoons (not even for a million billion dollars) then how much does it cost me to buy a spoon? Jan 28, 2018 at 22:26
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1@Vic: There's almost always a bid price and an ask price for any publicly traded stock. When the spread between them gets larger than the noise there's no motion. My dad trades in a stock that only has a sale every few days. He can find the ask price any time he wants.– JoshuaJan 28, 2018 at 22:53
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3@Vic Market maker banks provide standing bid/ask orders for most stocks in NYSE and NASDAQ to facilitate a liquid market. Jan 29, 2018 at 1:49
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1@Vic The price is what you can buy or sell it for now. What does it matter that I bought a spoon last week for 50 cents, if nobody is selling them now for a million billion dollars? Jan 30, 2018 at 0:17
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3I like the answer the most of all given (short and sweet); but I believe it could be made even stronger by going more at the core message that there is no price (insert Matrix voice here). There is bidding and asking, and eventually a transaction happens; and the transaction has a price. But not the stock itself.– AnoEJan 30, 2018 at 20:47
"The price is literally the last price at which a transaction occurred." This is your accepted answer, and it is wrong.
Sorry Joe but this is unequivocally not true. Every exchange has different rules for how it displays a stock's price on its platform. Your answer is very very NASDAQ/NYSE specific and even those exchanges do not use the last sale as the price.
Most global exchanges give an aggregate of the previous day, others actually give some sort of weighted daily/weekly average. Often Euro exchanges implemented these rules to discourage end of market fixing - two steps ahead of us in the US. End of market fixing was a common tactic by seedy market manipulators that would buy a stock at an absurdly high price to inflate it for the next day's open.
So to answer a couple of questions:
Does this mythical company's stock price go up? Yes. This isn't something that normally happens though but it could. Let's say that company XYZ has 3 shares of stock in its whole company valued at 3 million a piece (this stuff happens in over the counter markets). So they are doing awesome. And buyers are putting bids in at 7 million for a share, but sellers aren't selling. That company's share price may be expressed as 7 million or more. So boom it could happen, it does happen, but not often.
Can a stock's price go up without another trade? Yes. If it is on an exchange that uses averages and stock XYZ had a couple of low sells at the end of the day it might not trade for hours and then be reported the next day to open at a higher price using the weighted average that the specific platform uses.
(I spent 10 years programming exchange buying -bot- systems for companies) Stock prices are set depending on the platform they are sold. The answers on this site do not take into the account of variance used in different global platforms. I can take an easy scenario. A company may ask for an exchange to halt trading on their company during a buyout scenario. The exchange may work with the company and find that company ABC will buy XYZ for double its currently traded price. It is up to the exchange how they will report it share price. Most US exchanges might just use last sale while other exchanges may use buyout share price. There are positives and negatives to all models - let me give you a hint though, the US exchange market is much more open to arbitrage and manipulation than our global counterparts.
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2+1 for you. I appreciate the comment/observation. My answer was based, as you noted, on NYSE/NASDAQ, the fact that when I try to enter an order, that's what I see, bid/ask, last. I don't understand your point (2). If 'no one is buying' are you suggesting older trades are still loading? Then what about after that? Jan 30, 2018 at 16:09
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@JoeTaxpayer - On #2 I am saying exchange may not use the last couple sales for a variety of reasons. They could be thrown out for being out of range, they could be thrown out because it will be rolled into a daily or weekly average, they may be considered too small of trades by some platforms and thrown out... I have learned that every platform is different, a lot different. Also NYSE/NASDAQ don't use last sale, they use last verified trade of exchange daily hours. Meaning that their last actual sale (think after market) isn't really the LAST SALE on listing.– blankipJan 30, 2018 at 16:13
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thx. My answer does kind of suck. That's what I get when typing that at a red light. Jan 30, 2018 at 16:15
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@JoeTaxpayer - The question was very broad. It did hit my wheelhouse though since I taught courses in this subject for years. I could talk for 3 days on the different ideologies and theories used by different trading platforms... and some just have goofy rules and this really doesn't even get into OTCs which just do whatever they want.– blankipJan 30, 2018 at 16:16
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"Most global exchanges give an aggregate of the previous day, others actually give some sort of weighted daily/weekly average." Is a synthetic price the real price, or is it the number that the securities commission in that company wants you to see?– RonJohnJan 30, 2018 at 21:41
XYZ is a publicly traded company. At the end of the day, the last trade is the closing price ($50). That price will not change until another transaction occurs and until then there will be no reporting of higher or lower prices.
While there is no trading, the bid and ask can fluctuate wildly or not at all. If I'm the the only one bidding to buy shares, I could bid $15. I will be the bid price until someone comes in at a higher price, say $35. The same could happen on the ask side at $55 or $75 or whatever. All of this posturing. They are meaningless offers since no trades occurred at those prices and the last trade at $50 stands until someone executes a trade at a different price.
answered Jan 28, 2018 at 23:25
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3It's highly unlikely that you would be the only person in the world to know that a company has value and no one else does. Investment banks have scores of quants looking for undervalued gems :->) Jan 28, 2018 at 23:31
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4@Vic if nobody is buying, you are out of luck. It's called stock liquidity. You may think it's worth millions, and company may be doing great, but if nobody wants to buy stock, you won't be able to sell it. You could still make money though - such a great (theoretically) company will make a profit (or it is probably not such a great company, eh?), and may decide to give dividends to shareholders. Jan 29, 2018 at 1:04
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2@Vic imagine I have an amazing vaccum cleaner, it works better than any vaccum cleaner has ever worked before, but everyone thinks it's terrible, and no one wants to try it. Should I be about to sell it for £1,000's? If no one is buying, I won't be able to sell it, no matter how good it is. Jan 29, 2018 at 9:49
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3@Vic So if you think the price should go up… well, what do you think what a price is?– glglglJan 29, 2018 at 15:40
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5@Vic "it's crazy to me that a company could be doing exceptionally well, but their stock price won't go up unless someone buys" It's only crazy because you've invented a crazy hypothetical scenario... in the real world, as Bob Baerker comments, someone, even if it's only market-makers, will set bid/ask prices, and someone will be following the company. If it's a less liquid stock, then the price may take longer to respond to good performance, and it may not respond as much as you'd like, but it will respond. Jan 30, 2018 at 10:16
By definition, if no transactions are occurring, then there is no "price". All we can say is what the price of the last trade was.
Someone could say what he might be willing to pay for the stock if he were interested in buying it. But if he's not interested in buying, that's a pretty meaningless number. If someone offered to sell him shares at that price, would he actually buy them? If not, it's not a real price.
A seller might say what he would hope to get if he could find a buyer, but hope and reality are often very different things.
Presumably an audit of the company's assets and analysis of their current sales, etc, could be used to calculate a theoretical value. But until you actually get an actual buyer and seller, that's just theoretical. Like someone compared this to what you could sell your house for after making improvements. Sure, if you bought the house for $100,000, and you spent $100,000 on remodeling, and someone has a formula somewhere that says that on the average remodeling increases the value of the property by 60% of the cost, then you could say that the house is now worth $160,000. But you have no assurance that anyone will actually pay that. Maybe anyone considering buying this house will think that your remodeling is awful and reduces the value of the house. Maybe someone will see it and decide it's the most beautiful home she's ever seen and will gladly pay $300,000.
It's also a stretch to say that NO ONE knows this company is doing well. Surely the people who work there and see hordes of customers snatching up all available merchandise have a clue that the company must be making money. Surely customers who see the crowds in the store every day have a clue. Suppliers know how much these people are buying from them. Etc. Maybe you could come up with a scenario, like the company makes its money by mining in remote parts of the world, they sell the ores in tiny quantities to each of a thousand different buyers, etc. But I think any such scenario would be far-fetched.
As others already explained, a stock price is normally determined by the actual sale of that stock.
An exception to this may be if something special happens, for instance a reverse stock split. This will have a significant impact on the price of 1 stock (but of course it is not the same stock as before the split, and does not influence the value of the company).
Though your question is specifically about increasing, a common situation where the stock price changes without a sale is actually when divident is paid. Of course this means a price drop.
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Many people don't understand the ex-div process. Though the share price is reduced on the ex-div date by the amount of the dividend (adjusted close), the price will drop but the change will be zero :->) Jan 29, 2018 at 21:05
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IIRC the company doesn't change the price when it pays a dividend. It can't really set the price at all aside from public offerings and stock splits. People just consider the stock worth less money after the ex date, because the money earmarked for dividends is not part of the company's funds anymore.– cHaoJan 31, 2018 at 20:35
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"a stock price is normally determined by the actual sale of that stock" - Maybe, but that only makes sense for liquid instruments. If on day 1, the bid price (of, say, an option, because that's more realistic) is $25, the ask is $26, and one contract trades at $25, then what's the "price"? You'd say $25, and that's reasonable, I guess. A few days pass, and no trades occur. But on day 5, the bid price is now $18 and the ask is $19. Is the "price" of it (to the extent that "price" is a synonym or proxy for its value) $25 because that was the last trade? Surely not.– JerFeb 1, 2018 at 0:11
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The bid and ask prices of options don't just magically change either. They're based on the latest sale just like the stock price is. They don't drop without something being bought and sold.– cHaoFeb 1, 2018 at 2:40
Short answer - yes, if the stock is tightly held and anyone wants to buy.
Price is what you pay, value is what you get. (W.B.)
Are you buying or selling?
The value of what you hold is not dictated by the last sale, it is dictated by what you will receive when you do sell.
Market depth may show buyers willing to pay and how much. For penny stocks not traded daily this can be quite grim. You may be able to sell a third at 10c, another third at 4c and the final third at 2c. This depends upon your volume and the volume of the demand at these price points. There may also be fence sitters that jump in.
Low latency cancellations can reveal more about the market depth by exposing some of the fence sitters and other robo traders. Putting in an order and canceling it 20ms later to avoid a real trade can reveal more buyers.
A lack of trades can also be a problem for fund managers, who have necessary need to value units in the fund realistically as well as conduct a timely and orderly sell down if margin calls are triggered, say. A stagnant market is as bad in this case as a volatile one.
Exceptions to the rule are pending mergers/takeovers. The price of the target will generally jump to settle at a premium and rise slightly to the promised price according to prevailing interest rates and how far away the event is. trading may even be suspended prior to the jump. When EDS was acquired by HP this was a healthy increase in value and a relatively linear, shallow ramp.
You've asked a theoretical question, which can only really have a theoretical answer:
"Does a product no one is buying, actually have a value?"
That is, if no one knows about it, no one is buying it and it has no inherent value.
answered Jan 29, 2018 at 17:48
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my question is more like: people used to buy the product, but they stopped. Can its value still go up (after spending time to upgrade/redesign the product)?– VicJan 29, 2018 at 18:21
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2It can't go up by itself. The value of a thing, basically, is what people are willing to pay or trade for it. People might consider paying more, but til they actually do -- that is, til they actually buy at a higher price -- you won't have any way to know how much.– cHaoJan 29, 2018 at 21:01
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@Vic if people stop buying it, it stops to have value. If I have a great painting I bought for $500 yesterday because I thought it looks nice but everyone else thinks it is awful, its value is $0. If I can never ever sell it to anyone, it is worthless. Even if I added a nice flower to it and now I believe it is worth at least $1000.– JosefJan 30, 2018 at 11:48
If the price is the value recorded from the last transaction, then this is not possible by definition.
If the price is the value for that somebody would agree to sell (as the price tag in the supermarket), it can be too high for anybody to make a purchase, and even further go up.
The reason may be that the owner would sell for the really high price but does not actually need and not especially want. If the number of owners is limited, if they make a tightly knit group with a group thinking, it is possible for all of them to be in consensus with this opinion.
I believe you are confusing price with value. Stock has a value, it represents a percentage of ownership, and thus has an absolute value at any given momement in time. Stock has various prices because various people own it and they have different expectations as to what the value will be in the future and different needs to exchange it for something else.
The value changes as the company buys, sells, creates and uses assets. Price can be referred to in the past tense, and that is what was paid for it or in the future tense, which what someone is willing to sell/buy it at.
Both the price and the value can change overnight without someone selling or buying stocks.
Basically, the answer is no. Very roughly, stock prices go up because there are more people who want the buy than who want to sell, and vice versa. And, the amount that the price rises is generally roughly proportional to the amount of buying vs the amount of selling.
There are a lot of technicalities that make what I said not 100% true, as you will read in the other answers. But, I think this is more along the lines of what you actually are trying to ask about.
