Some price action questions from a beginner

[Lacanau]

Hi everyone, I'm looking to clear up some of what I believe to be misconceptions about what drives the price of any particular share. At the moment I believe that as people buy a share, this will move the price higher and as people sell a share, the price falls.
Here is my dilema, if people are buying shares, someone is of course selling them and vice versa?
Could anyone clear this up for me? / point me in a direction where I can find the answer and learn more?
Thanks in advace :clap:

 

[Shakone]

There are many other threads that answer this if you look around, but it doesn't just come down to people buying and selling at a price (because as you say they are equal) but the willingness/need to buy at even higher prices/buy more, and the unwillingness/lack of need to sell at lower prices/sell more that can drive prices up. This isn't the whole story of course.

You've got a lot of a particular product. There are lot of people wanting to buy it. You start selling at 10. The demand is huge. You don't sell all at 10, you sell some, then you decide to raise the price to 11 and you sell some more at 11 because they're willing to pay 11, and you move it upwards until you get to 20 perhaps and now there is nobody wanting to buy it at 20. then price can go down again. BBmac explained this much better than I only last week I think on another thread.

 

[mb325]

That's a slightly confusing way of describing it as it's really market orders, demanding liquidity (as opposed to limits which provide liquidity), which drive price. Think of it this way: you are in a market, you need to buy 50 apples. There are 3 sellers, one willing to sell all his 20 apples at £10, another 20 at £11, another willing to sell 10 at £12.

Let's say you 'need' the 50 apples. Those sellers are effectively representing limit orders in a market order-book. You will pay £10 for 20, £11 for 20, and £12 for 10. You have driven price up to £12, despite the fact there have been an equal number of buy and sells.

Hope that helps.

 

[alexander]

That's a slightly confusing way of describing it as it's really market orders, demanding liquidity (as opposed to limits which provide liquidity), which drive price. Think of it this way: you are in a market, you need to buy 50 apples. There are 3 sellers, one willing to sell all his 20 apples at £10, another 20 at £11, another willing to sell 10 at £12.

Let's say you 'need' the 50 apples. Those sellers are effectively representing limit orders in a market order-book. You will pay £10 for 20, £11 for 20, and £12 for 10. You have driven price up to £12, despite the fact there have been an equal number of buy and sells.

Hope that helps.

Excellent example!

 

[Lacanau]

That's a slightly confusing way of describing it as it's really market orders, demanding liquidity (as opposed to limits which provide liquidity), which drive price. Think of it this way: you are in a market, you need to buy 50 apples. There are 3 sellers, one willing to sell all his 20 apples at £10, another 20 at £11, another willing to sell 10 at £12.

Let's say you 'need' the 50 apples. Those sellers are effectively representing limit orders in a market order-book. You will pay £10 for 20, £11 for 20, and £12 for 10. You have driven price up to £12, despite the fact there have been an equal number of buy and sells.

Hope that helps.

Ok, so let me see if I understand this correctly

As i'm playing with small amounts of money, when I buy shares, I will usually get them all at the same price, because I'm usually buying a smaller portion of someone elses larger sell order? Also, if I were to buy a much larger package, then I may end up paying different amounts shares as I will in essence be buying out multiple sell orders correct?
If this is the case and I'm using an online brokerage, I assume they notify you of this when you place the trade? Is this the primary reason I see humungeous jumps in price when large volume trades are made?

Thanks for the replies

 

[rsh01]

Ok, so let me see if I understand this correctly

As i'm playing with small amounts of money, when I buy shares, I will usually get them all at the same price, because I'm usually buying a smaller portion of someone elses larger sell order? Also, if I were to buy a much larger package, then I may end up paying different amounts shares as I will in essence be buying out multiple sell orders correct?
If this is the case and I'm using an online brokerage, I assume they notify you of this when you place the trade? Is this the primary reason I see humungeous jumps in price when large volume trades are made?

Thanks for the replies

you have answered all your own questions, and by using the example posted by mb you can see that your answers are on the whole correct.

i didn't want to add this as i have a feeling it will just come back with more questions:

~price can move around due to low volume trades also eg it could be a high frequency of low vol trades eg (100 people wanted to buy 1 apple each at any price ie market price).

~also there could be low liquidity (not many limit orders in the market) eg the 3 apple sellers only have 1 apple to sell at each price £10-£12 - so it will move through these prices quickly as there are is demand for 100 apples at market price.

google is a very handy tool.

 

[Lacanau]

I can see a little clearer
Thanks a lot for the help everyone :clap: