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Bid volume greater than offer volume, but price increasing. Why is this?

Personal Finance & Money Asked by Neville Nason on June 14, 2021

I’m looking at a 1-minute chart of NQ prices. Using a CQG data feed that provides bid and offer volume. Every minute over a given 5 minute period, the number of shares traded at BID was greater than those traded at OFFER. However, over that same 5 minute period, the price moved higher each minute (1-minute bars).

Wouldn’t more shares moving at BID have the effect of pushing the price down over those 5 minutes?

Can anyone shed light on this for me? Thank you!

3 Answers

Suppose the market is $50.00 x $50.15 with a size of 10,000 x 1,000. That means that buyers are bidding to buy 10,000 shares at $50.00 and sellers are offering 1,000 shares at $50.15

What happens now? Will price rise or will it drop? That all depends on who crosses the market and for how many shares.

Suppose I come along and I sell 2,000 shares at the bid. The quote now becomes $50.00 x $50.15 with a size of 8,000 x 1,000 (assuming no new orders come in at current price). If the previous trade was at $50.00 then price is unchanged.

Suppose you come along and you buy 1,000 shares at the ask price of $50.15, taking out all shares offered at that price (and no new orders come in at $50.15 or better). The ask price now moves up to the next order on the order book, say 500 shares at $50.25.

If no buyers raise their bid, the quote becomes $50.00 x $50.25 with a size of 8,000 x 500. However, in general, as the ask price moves up, bids tend to be increased as buyers raise their buy prices.

The net result? 2,000 shares traded at the bid and 1,000 shares traded at the ask and yet price increased (last trade as well as the ask price).

Correct answer by Bob Baerker on June 14, 2021

Think of houses for sale on a street. If nobody will sell, the price goes up. If there are more and more bidders bidding and paying their bid price, the price goes up.

I may misunderstand something you describe, but as far as I understand it, what you describe is the normal and obvious situation.

Note that the OP is describing sales actually made. Not bids and offers sitting there.

Answered by Fattie on June 14, 2021

To rephrase Fattie's answer: it's supply and demand. Low supply and high demand makes for high prices.

If you don't believe that, look at an auction.

When there's a lot of widgets to buy from multiple sellers but few want to buy, prices are low. When -- like in your scenario -- a lot of people want to buy widgets, but few want to sell, buyers start driving up the amount of money they're willing to pay for the widgets.

And the stock market is a great example of an auction...

Answered by RonJohn on June 14, 2021

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