Why Do Stock Prices Move?
More eager buyers push the price up; more eager sellers push it down. A tug-of-war that explains supply and demand.
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Text version · Stock Basics, lesson 6: “Why Do Stock Prices Move?”
More eager buyers push the price up; more eager sellers push it down. A tug-of-war that explains supply and demand.
More buyers → price pushed up
Buyers are scrambling for shares and have to pay more, so the price climbs step by step.
More sellers → price pushed down
Sellers are in a hurry to get out and have to cut the price to find takers. The price is set by supply and demand, not by the company or the broker.
News changes the willingness to buy and sell
Earnings, policy and industry news don't change the price directly. They change how many people want to buy and how many want to sell. Some markets also have a price limit capping how far a stock can move in one day.
Key takeaways
- The stock price is set by buyers and sellers in the market, not by the company or the broker.
- When buyers are more eager and willing to pay more, the price rises. When sellers are more eager and willing to accept less, it falls.
- Earnings, policy and industry news change how keen people are to buy or sell, and the price adjusts.
- When buying and selling pressure are roughly balanced, the price bounces around within a range.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Press ▶ with "Want to buy" at 6 and "Want to sell" at 4: which way does the price go, and how big does the change get?
- Set both sides to 5: does the price keep rising, or does it wobble in place?
- While it plays, click "Good news: earnings beat" and watch the knot, the head counts and the price line change.
- Set "Want to sell" to 9, then click "Bad news: product recall" and see how low the price gets pushed.
Quiz and explanations
- 1. A company reports better-than-expected earnings. What's most likely to happen?
- Answer: More people buy, and the price rises.Good news makes more people want to buy. Buyers gain the upper hand and the price rises.
- 2. Who decides the stock price?
- Answer: The balance of buyers and sellers in the market.The price is the result of buyers and sellers continually trading with each other.
- 3. A stock just traded at $50. After bad news, sellers had to drop to $48 before a buyer would trade. What's the latest price?
- Answer: $48.The latest price is simply the most recent actual trade. Sellers gave way to $48 to get a fill, so the price is now $48.
Terms in this lesson
- price limit (Price Limit): Some markets cap how far a stock can move in a day (±10% for most Chinese main-board stocks); hitting the cap is limit-up, hitting the floor is limit-down.
- supply and demand (Supply & Demand): The balance between people who want to buy (demand) and people who want to sell (supply), which decides where the price goes.