All the brokers and individuals logged into trading platforms enter the prices at which they wish to execute a buy or sell.
The system matches buyers to sellers, and that creates a pressure which moves the price this way and that way.
Firstly, consider the situation when there is a disparity between the prices: most asking prices are too high relative to bids, the volume of trading will be low. In this situation, sellers who want to get rid of the stock are motivated to drop their prices. Or, alternatively, if the market believes the stock has good near term prospects, the buyers have to raise their bids. Raised bids cause upward pressure on the price, lowered asks downward pressure. (No brainer!)
(You can see a big spread in bid/ask prices after hours when an exchange is closed. After hours trading is possible. If you want to buy and have that execute, you have to specify at least the asking price. Otherwise your bid will just be added to the others that are sitting there, waiting. After-hours trading volumes are significantly lower, which is associated with the wide bid/ask spread.)
When people execute market orders, that also moves the price. Selling something at market order means you urgently want to sell at whatever price is current. That means that your asking price will be lowered in order to meet a bidder.
Short-selling activity can drive a price down. And of course, short selling is motivated by the belief that a stock is about to tank or tanking. Under short selling, someone borrows a stock and sells it right away, hoping to buy it back at a lower price. They sell it ASAP because they believe they are buying a tanking stock, so they faster they sell it, the more money they will fetch, and the bigger will be their take when they buy it back. Short selling, I think, typically uses market orders, and so thereby exerts downward pressure. When bad news about a company invites short sellers, that can accelerate the drop in the stock price.
Anyway the end of the day, the price is the result of psychology, plus a few fundamentals of the stock like company earnings and whatnot. People have beliefs about which way something will go, and that effects their buying and selling behavior. The prices come from all the individual trades.
Ask yourself, what caused the Beanie Baby craze? What was the cost basis for someone paying $200 for a stuffed toy? Simply the belief that someone will later pay them $300, together with a casual dismissal of the risk that they will not even get back their $200 --- why, because they are in the middle of a craze that is obviously going to go on longer than the time scale of their intended action!
All the brokers and individuals logged into trading platforms enter the prices at which they wish to execute a buy or sell.
The system matches buyers to sellers, and that creates a pressure which moves the price this way and that way.
Firstly, consider the situation when there is a disparity between the prices: most asking prices are too high relative to bids, the volume of trading will be low. In this situation, sellers who want to get rid of the stock are motivated to drop their prices. Or, alternatively, if the market believes the stock has good near term prospects, the buyers have to raise their bids. Raised bids cause upward pressure on the price, lowered asks downward pressure. (No brainer!)
(You can see a big spread in bid/ask prices after hours when an exchange is closed. After hours trading is possible. If you want to buy and have that execute, you have to specify at least the asking price. Otherwise your bid will just be added to the others that are sitting there, waiting. After-hours trading volumes are significantly lower, which is associated with the wide bid/ask spread.)
When people execute market orders, that also moves the price. Selling something at market order means you urgently want to sell at whatever price is current. That means that your asking price will be lowered in order to meet a bidder.
Short-selling activity can drive a price down. And of course, short selling is motivated by the belief that a stock is about to tank or tanking. Under short selling, someone borrows a stock and sells it right away, hoping to buy it back at a lower price. They sell it ASAP because they believe they are buying a tanking stock, so they faster they sell it, the more money they will fetch, and the bigger will be their take when they buy it back. Short selling, I think, typically uses market orders, and so thereby exerts downward pressure. When bad news about a company invites short sellers, that can accelerate the drop in the stock price.
Anyway the end of the day, the price is the result of psychology, plus a few fundamentals of the stock like company earnings and whatnot. People have beliefs about which way something will go, and that effects their buying and selling behavior. The prices come from all the individual trades.
Ask yourself, what caused the Beanie Baby craze? What was the cost basis for someone paying $200 for a stuffed toy? Simply the belief that someone will later pay them $300, together with a casual dismissal of the risk that they will not even get back their $200 --- why, because they are in the middle of a craze that is obviously going to go on longer than the time scale of their intended action!