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HOW IS A STOCK PRICE DETERMINED?

today we're going to speak about how

actually stock prices are determined so

what does it mean when you see prices

jumping all around what does it mean

when you go to your screen and you see

that the price of a stock is at fifty

dollars it's all about supply and demand

so let me explain in a reality you have

basically two queues a queue of buyers

this side here on the left side we call

it the bid side and then you have a

queue of sellers this side here

on the right side we're gonna have offer

on the left side it's sorted by price so

somebody is willing to buy at fifty

dollars and they're willing to buy 200

shares so these are the quantities and

these are the prices somebody else is

willing to bind up at the $50 price a

little bit lower price at $49.99 but

they're willing to buy 500 shares and

then a third person is willing to buy at

4998 at 300 shares notice that it's very

important this is sorted by price not by

quantity in this case here it could be

100 it could be 600 it doesn't matter

this person here has a higher priority

because they're willing to buy at a

higher price it's exactly the same on

the opposite side somebody's willing to

sell 100 shares at $50 and one cents

somebody's willing to sell at 303

hundred shares at 50 dollars and two

cents notice again the prices are sorted

here the quantities they don't matter if

I'm willing to sell at a lower price

than somebody else I have the priority

now when does the matching happen if

somebody's willing to buy let's say at

$50 and somebody new comes and says okay

I'm happy to sell 200 shares at $50

that's when the trade happened that's

when you see the trade price of the

stock is at $50 now when you look at the

prices at $50 does it mean that you can

just buy a limited number of shares no

no no can you go and just buy like a

million shares at $50 absolutely not

remember it's all about supply and

demand if you wanna buy a lot of shares

a million shares is a lot of money we're

talking here about 50 million dollars

about potentially an institutional

client but they're not going to be able

to get necessarily at $50 and $50 on one

sense remember if there is more demand

the prices go up more supply the prices

go down now another very important thing

that I wanted to talk about is how

actually do you go and you execute these

orders there are multiple type of orders

but let me talk about two of them one is

a limit order okay

so basically with the limit order you

say I wanna buy 200 shares but the

maximum price and put it in is like $50

and one cents one in this case guess

what I can get done of 100 shares at $50

and one sense but by putting the limit I

know what's the maximum price I'm going

to get it never wit will never go above

that that's the advantage of a limit

order another type of order is a market

order with a market order you don't know

the price that you gonna get executed at

because prices move fast okay now there

is a very big risk with a market order

that I want to highlight so imagine in

this case you see that the stock is

trading at $50 and then you go and you

put a market order let me buy the stock

okay thinking that it should be around

$50 but right when you press the button

right before that what happens is like

there is a news about the stock and then

the stock jumps somebody's acquiring the

company well guess what you're not going

to get executed at $50 with a market

order you're gonna get executed at a

much higher price which was not your

intent so you have to be very careful

with market orders bottom line stock

prices are determined based on supply

and demand and then you have to pay a

lot of attention to liquidity of stocks

and also the type of orders you are

using to execute your trades thank you

so much for your support and I will see

you next time

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