Expansion on title: how do stocks move up in terms of how much money flowing in?
If a 10Billion market cap company moves 10% today, does it actually mean 1 billion dollars of money bought up the stock?
If yes and it means the same for a smaller market company, that would mean smaller market cap companies require less volume/money to move same amount of percentage points right?
(or is stock movement simply just about the current demand/supply of liquid shares trading)
ELI5: How does stocks actually move in money terms?
byu/Old_Research_3436 instocks
Posted by Old_Research_3436
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>If a 10Billion market cap company moves 10% today, does it actually mean 1 billion dollars of money bought up the stock?
No.
Google “liquidity”, because that’s what that is.
Price movement is not about money moving in or out per se, because in every transaction the same amount of money exchanges between the seller and the buyer.
the price of the stock is that last price it was bought or sold at. with low volume you can see stocks move Billions of dollars in market cap very quickly, up or down, depending on the circumstance. The market cap is the price of the stock multiplied by the number of shares on the market. SO when selling starts for example and the stocks market cap goes down by a few billion, its because it keeps getting sold at a lower price…
The price is the value between the buy price and sell price postings, the difference between those 2 is the spread. The amount of money traded is the volume. This is why the price action (changes in the price) at higher volumes often has more meaning.
Market cap DOES NOT equal amount invested. Big difference. Often a $10m investment can move the market cap by significantly more, sometimes by over $100m to much more in extreme cases.
IE: When a company raises money, they may raise say $10m at a $250m valuation. Previous raise was $5m at $100m valuation. The company got $10m invested, but their market cap went up by $150m (15x more than money invested).
Public companies work similarly in this manner, but it’s done via the stock market. It’s a function of liquidity, valuation (what people think it’s worth), supply, demand & a bunch of other things.
TLDR: IT’s not 1-1
The key things are price and total shares outstanding.
Total shares outstanding only goes up if the company issues new shares. For the sake of simplicity we will assume that this is constant here.
Let’s say the last traded price for these shares was $100, and that there are 100 million shares outstanding (giving us the 10 billion starting value)
Price moves when people buy or sell shares on the market. There are people with constant orders on an “order book” that people can pick an choose to buy or sell.
What happens is that buy and sell orders are matched, and any leftover become standing orders. The gap between standing buy orders and standing sell orders is called the “bid-ask spread”.
This is where the price actually moves. The order book looks something like:
“`
101
–
99
“`
because the current price is 100. So, to move the price UP, the 101 sell orders must be purchased:
“`
102
–
–
99
“`
Now the price is higher, and likely all of the buy orders at 99 will move up to 100 but that’s not necessary. The last traded price was 101, so now all of our 100 million shares are worth 101 each and market cap goes to 10.1 billion.
What’s happening when the market cap goes up 10% is that all of the standing sell orders between 100 and 110 are bought up. The price becomes $110 and then you multiply that by 100m, that’s it.
This is not a perfectly accurate or even a great example, but it gets the mechanics across. The amount of shares that are traded at 101 is mostly irrelevant, and yes this can lead to exploits. A good example is Navinder Sarao spoofing large orders to manipulate the order book if you want to google.
It works like an auction
The price of a stock is the last price at which both buyer and seller agreed upon, this could be because of just one stock traded between them, of course if it’s too high the market will bring it down and vice versa to make it an effective market.
Yeah to an extent. It’s fairly well accepted that if a large trade happens on the ask side of the market, the aggressive party (price taker) was a buyer. There’s a quasi-technical analytic called money flow that nets out the total value of trades on the bid and ask. If a stock price is fairly flat, but money flow becomes distinctly positive or negative, it could signal an impending move.