How Prices Move

Think about tickets for a hit concert. If 10,000 fans want seats in a hall that holds 1,000, resale prices shoot up. If the band has a bad review and half the fans lose interest, prices drop. The tickets did not change. The balance between people wanting to buy and people wanting to sell did. Every price on every chart moves for exactly this reason.

Supply and demand

Supply is how much of something people are willing to sell at a given price. Demand is how much people are willing to buy.

• When buyers are more eager than sellers, they have to offer higher prices to get filled, so the price rises.
• When sellers are more eager than buyers, they have to accept lower prices to get out, so the price falls.

Every trade still needs a buyer and a seller. Price moves because of who is in more of a hurry.

The order book

Most markets keep an order book: a live list of all the waiting orders from people who want to buy or sell at specific prices. Here is a simplified one for a stock:

SELLERS (asks)
  300 shares at $100.06
  500 shares at $100.04
  200 shares at $100.02   <- best ask (lowest seller)
---------------------------------
  400 shares at  $99.98   <- best bid (highest buyer)
  600 shares at  $99.96
  250 shares at  $99.94
BUYERS (bids)

Sellers sit on top, buyers below. The gap in the middle is where the action happens.

Bid, ask and spread

• The bid is the highest price a buyer is offering right now. If you want to sell immediately, this is the price you get.
• The ask (or offer) is the lowest price a seller will accept right now. If you want to buy immediately, this is the price you pay.
• The spread is the gap between the two. In the book above, it is $100.02 − $99.98 = $0.04.

The spread is a real cost. You always buy at the higher price and sell at the lower one, so every trade starts slightly in the red.

Worked example: paying the spread

You buy 100 shares at the ask of $100.02. That costs $10,002.

If you changed your mind one second later and sold, you would get the bid of $99.98, which is $9,998.

You are down $4 before the price has moved at all. The price needs to rise by at least the spread just for you to break even, and that is before any commission.

Worked example: walking the book

Now say you want 300 shares right away. Only 200 are offered at $100.02, so your order takes those and then fills the remaining 100 at the next level, $100.04:

• 200 × $100.02 = $20,004
• 100 × $100.04 = $10,004
• Total $30,008, an average of about $100.027 per share

Your order pushed through more than one price level. Big orders can move prices on their own, and getting filled at a worse price than you expected is called slippage.

Liquidity

Liquidity means how easily you can buy or sell without moving the price much. You can see it in the order book:

• Liquid markets have lots of orders stacked close together and tight spreads. A large, popular stock might have a spread of one cent on a $100 share, just 0.01%.
• Illiquid markets have few orders, big gaps between price levels and wide spreads.

Here is what that looks like in money. A small, rarely traded stock shows a bid of $0.95 and an ask of $1.05. You buy 1,000 shares at the ask for $1,050. If you sold straight away at the bid, you would get $950. That is a $100 loss, almost 10%, from the spread alone.

Liquidity also changes over time. Even popular markets get thin late at night, on holidays and in the minutes around big news, so spreads widen when you least expect it.

What actually pushes prices around

So what makes buyers or sellers suddenly more eager? Usually one of these:

• News: company earnings, interest rate decisions, jobs reports, elections, wars.
• Big players: banks, funds and institutions placing very large orders.
• Sentiment: fear and excitement spreading through traders, sometimes with no new information at all.

You will never know every reason behind a move. You do not need to. What you need is a plan for what you will do when price goes for you and when it goes against you.

Risk note: Wide spreads and slippage quietly eat into results, especially if you trade often. Check the spread before every trade, and be extra careful in thin markets and around major news.

Key takeaways

• Prices move when buyers or sellers become more urgent than the other side.
• The order book shows waiting buy orders (bids) and sell orders (asks).
• You buy at the ask and sell at the bid; the gap between them, the spread, is a cost on every trade.
• Large orders and thin markets cause slippage.
• Liquid markets have tight spreads and deep order books; illiquid ones can cost you before price even moves.

Up next: Your First Demo Trade, where you practise everything so far with virtual money and zero risk.