What actually controls stock prices?

[nopeda]

Do the companies control the prices at which their stocks sell, raising the price as more stocks are sold? Or does the price automatically rise as more are bought, and then go down when they are sold? Or doesn't the number of sales have anything to do with it? Or...???

Also, can you always buy and sell stock when you want to? I had been of the opinion that you could just buy and sell whenever you want, or maybe whenever the market is open. But someone mentioned something about one of the dangers of penny stocks being that you can't always get rid of them when you want to. So can you not always buy and sell when you want? And if not, what places the restrictions?

Thank you for any help understanding these things!
David

 

[Baron]

Once a company issues it's stock to the public, the price that stock trades at is subject to supply and demand in the open marketplace. When there is more demand from buyers than there is available supply from sellers, the price goes up. Or vice versa. When there are a ton of sellers but few willing buyers, the price goes down.

The issue with penny stocks is that there aren't many market participants because those companies are small and virtually unknown to most people. And when the number of market participants is low, the spread gets wide, and by spread I mean the difference between what people are willing to pay (the bid price) and what people are willing to sell for (the ask price). So the issue isn't necessarily that you can't get rid of a penny stock at all, it's that you can't get rid of it AT THE PRICE YOU WANT because the spread is so wide. So you're somewhat stuck in limbo waiting on a willing bidder to come in at a price you desire. And if there's very little activity in that stock, you could be waiting a long time.

 

[ETcallhome]

I'm not so sure they are controlled, but wouldn't it be nice if you could do it?

 

[Xela]

Do the companies control the prices at which their stocks sell, raising the price as more stocks are sold? Or does the price automatically rise as more are bought, and then go down when they are sold? Or doesn't the number of sales have anything to do with it? Or...???

The price isn't "controlled", per se. It's arrived at in a free market as a result of the imbalances between buying pressure and selling pressure (which some people, only slightly mistakenly, call "supply" and "demand").

Also, can you always buy and sell stock when you want to?

In practice, it depends how much of it there is. You can always buy or sell stock in Microsoft when you want, at the currently quoted prices. Not necessarily so for a penny stock, though: if they're liquid enough for you to own them and have bought them through a broker, you can probably sell them, but not necessarily quickly and not necessarily at the price you want/expect, especially if anyone else has the same idea at the same time.

I had been of the opinion that you could just buy and sell whenever you want, or maybe whenever the market is open.

That's true of some traded instruments but tends not to be true (or at least not to be true reliably)of penny stocks.

 

[Stockmarketmap]

Expected earnings and investor emotions

The fundamental value of a company’s stock is based on its current and expected earnings, and evolves relatively slowly. A company’s stock price, on the other hand, is simply the result of supply and demand on any given day. The daily demand for a stock, like our moods and emotions, is affected by many things that have nothing to do with a company’s fundamentals.

 

[Swan Noir]

Supply and demand. Unless you can come to this conclusion instantly on your own you need to accept you are a long way from being ready to risk even one thin dime trading.

 

[nopeda]

The price isn't "controlled", per se. It's arrived at in a free market as a result of the imbalances between buying pressure and selling pressure (which some people, only slightly mistakenly, call "supply" and "demand").

At first that seemed to answer the question but thinking on about it instead it brings more things into question, like how? Is there one super trading computer that is programmed to raise or lower the price of all stocks according to supply and demand? And whatever does it, is it done proportionally the same for all stocks? Will all stocks that are currently $1 go up the same amount if 10K shares are bought, and drop the same amount if 10K shares are sold, etc? And those decisions are communicated to all trading establishments (or whatever they're called) and related establishments all over the planet, simultaneously, during all of every business day? And what about hackers and viruses? Do they worm their nasty way into the mix and screw things up for everybody?

 

[Metamega]

Judging by your other post your very new to this.

When you see a quote on a stock price that is just the last transaction that occurred.

Stock prices are drove by what are buyers willing to buy at and what are sellers willing to sell at. It's just like an auction.

That quote you see of last price is sent by the exchanges. It does not dictate anything more then the last transaction and its volume. The NBBO ( national best bid/offer) is also visible to all participants and is the best bid( buyer) and offer( also known as ask which is the seller).

The market determines the price. What are people buying/ selling at. It's all about buyers and sellers meeting to find a value they agree on.

 

[Xela]

At first that seemed to answer the question but thinking on about it instead it brings more things into question, like how?

Yes, it does.

People always say "supply and demand", but this doesn't explain the mechanics.

When you look at "level 2" it becomes apparent: that shows what's for sale, at what prices. To give a very simplified example, if you want to buy 1,000 shares in a company, there might be 400 for sale at $28.00 and then 400 more at $28.05 and you have to take the last 200 of your order at $28.10, so the act of your buying (when the price was $28.00, or $27.98 - $28.02) has left the market with the next ones for sale now at $28.10, or perhaps $28.08 - $28.12 if you want the bid/ask shown.

I don't trade stocks myself, and my numbers might be inappropriate, but I think that example demonstrates the mechanics of why/how "demand" (better known as "buying pressure") actually increases the price at which they're available, for the next buyer after you? Does that make sense?

Is there one super trading computer that is programmed to raise or lower the price of all stocks according to supply and demand?

Not quite, and it's not as simple as that. My example above illustrates a simplified version of a stock for sale at only one central exchange. But if they're for sale in more than one place, there are also automated trading algorithms seeking arbitrage opportunities and so on, which normalize/balance different supplies anyway.

And whatever does it, is it done proportionally the same for all stocks?

No, not at all.

Will all stocks that are currently $1 go up the same amount if 10K shares are bought, and drop the same amount if 10K shares are sold, etc?

No, not at all. That depends on liquidity. Buying 1,000 shares in Microsoft isn't going to move the price at all, because there'll be a huge number of them for sale at the first price you can take, whereas if you want to buy 1,000 shares in a tiny mining company in some small country, that company has far fewer available in the first place, and they're not traded much, so even your 1,000 share deal will effectively raise the price a little (I'm simplifying, but you can appreciate the principle, from what I'm saying?).

And those decisions are communicated to all trading establishments (or whatever they're called) and related establishments all over the planet, simultaneously, during all of every business day?

There's an element of that, in the computer/internet age, yes.

Tell me whether what I've said above makes sense to you, David, and if not I'll try to explain it a different way.

 

[vicirek]

Supply and demand. Unless you can come to this conclusion instantly on your own you need to accept you are a long way from being ready to risk even one thin dime trading.

Supply is unlimited if you add short sales, naked shorts, secondary offerings, convertibles and all other possible tricks from financial engineering toolbox. However, supply can also be restricted by controlling the float and number of shares available for borrowing with the intent of short sale. Investment banks can cooperate with company management and big investors to control prices to some extent using those tools and their money.