A really simple, difficult question

Why does the price of a security (or future, etc) rise? Because there are more buyers than sellers? There can't be. For every buyer there is a seller. Because buyers are buying "faster" or more fervently? Again, that can't be because someone is taking the other side of those trades just as quickly.

Is it because they buyer puts the buy order in before the seller picks it up and that creates a shortage? That seems to be the only explanation but in this day of lightning fast fills is that really quantifiable.

It seems like an endless tug of war that should result in constant equilibrium. It seems so simple yet I'd love an explanation.

 

Stocks/futures increase whenever there are more buyers than sellers at a certain price level. In order to get filled, the buyers need to raise prices in order to draw more sellers into the market.

 

It's a mass effect. Although the time and sales record the ticks, whether it reveal the cause is still unknown. Maybe we need a series snapshot of L2 to explain the myth, technically.

 

Actually, the number of buyers has less to do with it than how much they're willing to pay.

It's an auction market; therefore, prices are determined by what buyers are willing to pay and what sellers are willing to accept. It doesn't take all that many buyers to drive the price up, but quantities of buyers help sustain the advance and lift it further. It takes only a few buyers to drive prices higher, but if no one joins the ranks, the advance stalls and reverses.

--Db

 

I think it's the difference in aggressiveness between buyers and sellers.

F. P.

 

As simple as blowing a cloud of cigar smoke. Yet, you'll notice how tough that is to model. . .

I don't understand why you think it would stay at this magic "equilibrium" level. Crap, when I worked at MSFT, folks would more-or-less randomly dump their options and ESPP. There's a definate random influence on the markets, somebody walks by a quote screen and calls their broker to buy or sell.

Then, there's legions (OK, not so many legions as before) of daytraders. And countless computer systems doing trading and arb. Somebody comes out of some meeting, and 1.5 million shares of abcd are getting dumped today.

 

dbphoenix, you've got the best answer: It's an auction-- precisely; (pure capitalism); and it would be even better if the SEC would keep their hands off it.

 

This question can be answered (but not explained) by putting up a Time and Sale window on a given symbol.

nitro

 

as stated previously... its an auction.

prices change due to changes in the supply and demand for x

 

Kinda' like that Toby Crabel book !