Free Trading School · Level 2: How Prices Move
Supply, demand and the auction
Price moves for one reason: an imbalance between buyers and sellers. When more traders want to buy than sell at the current price, buyers must offer more to get filled and price rises. When sellers are more eager, they accept less and price falls.
News, earnings, interest rates and emotions all matter only because they change how eager people are to buy or sell. A good earnings report does not move a stock by itself; the wave of buy orders it triggers does.
Ten people want concert tickets and only five are for sale. Buyers outbid each other and the price climbs until five buyers remain. If the band cancels a show and twenty extra tickets appear, sellers must cut prices to find buyers. Markets work the same way, thousands of times per second.
Price is not "right" or "wrong". It is simply where buyers and sellers currently agree to trade.
Quick answers
Price moves for one reason: an imbalance between buyers and sellers. When more traders want to buy than sell at the current price, buyers must offer more to get filled and price rises. When sellers are more eager, they accept less and price falls.
Price is not "right" or "wrong". It is simply where buyers and sellers currently agree to trade.
Because buyers are more eager than sellers at the current price. An imbalance between buyers and sellers is the only thing that moves price.
Next lesson: Bid, ask and the spread