Personal Finance & Money Asked on February 13, 2021
This confuses me because people say “everyone is selling off” implying there is more sellers than buyers. It’s the exact opposite when the price goes up. But for an order to go through, there needs to be both a buyer and seller, at the end of the day there is an equal amount of buyers and sellers? Who’s to say the rise in price isn’t from sellers instead of buyers?
Of course there are the same amount of seller and buyers at the end, but the point is the number of potential buyers / sellers - the amount of shares that people would like to buy / sell.
Imagine this: assume you want to sell your shares, because you need cash, or because you think the price will soon go down, or whatever. If there are more sellers than buyers, potentially nobody is going to buy your shares, unless you offer them a bit cheaper than the others. Of course, all sellers do that, and if there are still more sellers than buyers, you might still not sell yours. So you go a bit further down in price, and the others too, and so on, and so on - with the result that the price is falling. With a lower price, there might be more buyers interested, or maybe some sellers decide they don't want to sell so urgently, so the process evens out the number of buyers and sellers, and the prices stop to fall.
As a seller, you simply cannot raise the price - if you offer for a higher price, people will just ignore you and buy from other sellers. You can only make your sale happen by going down with your asking price, so someone takes it.
All that logic works the other way round if there are more buyers than sellers. Of course, buyers also cannot lower the price, because if they offer a lower price, they simply get ignored.
Correct answer by Aganju on February 13, 2021
Price rise doesn't come from sellers instead of buyers.
For every transaction there is a buyer and a seller but that doesn't necessarily mean that the number of buyers equals the number of sellers. Nor does it mean that the magnitude of buy orders equals that of sell orders.
Throughout the day, if a similar amount of buying and selling volume comes in at current price, there is equilibrium and price goes nowhere. If an excess of one comes in, price changes.
For example, every time a buyer takes out a seller, if no new seller(s) come in at current price, the price will moves up to the next ask price on the order book. If additional buying takes out that ask price and new sellers don't come in at the new current price, then the ask price moves up again. This either entices new buyers to come in at a higher bid price or the market maker raises the bid, assuming he is the market. The longer this continues, the higher share price will go.
Therefore, it is the aggregate buying (or selling) volume of orders hitting the market that matters rather than the number of buyers and sellers. Ten buyers of 100 shares each has the same effect as one buyer of 1,000 shares. However if a 1,000 share buy order takes out the shares available at the ask price, the ask price rises to the next order on the order book (and vice versa for selling).
Answered by Bob Baerker on February 13, 2021
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