How stock prices move

Stock prices move when the next buyer and the next seller agree a different rupee. The number on the screen is that deal, for one share. The company is not announcing a new value.

Four words. Each one is small.

• Supply means shares sellers will give at one price. It does not mean every share the company has.
• Demand means shares buyers will take at that same price. It does not mean "people like the company."
• News means a new fact. The old price did not already include it.
• Expectations means what buyers and sellers already believed. A headline that only repeats that belief is not news. The price can stay still.

This is a made-up example, not a live price. We take one number at a time.

The idea, with the arithmetic

₹200 is the price of one share

The last deal was ₹200. That is the price of one share. It is not the bill. The bill comes later, when you multiply by how many shares changed hands. The ₹200 deal is already over. The next two people can agree a different rupee. That difference is the move.

Who will sell at ₹200

Sellers offer 100 shares at ₹200.

• These 100 shares are for sale at ₹200.
• A person who wants ₹210 is not in this pile.
• The company may have a huge number of shares in total. Those shares are not all for sale at ₹200 right now.

Who will buy at ₹200

Buyers want 300 shares at ₹200.

• These 300 shares are wanted at ₹200.
• It may be one person, or many people added together. The names do not matter.
• Someone who will pay only ₹150 is a different list.

Only the matching shares can trade

A deal needs both sides. Buyers want 300. Sellers offer 100. The match is the smaller number: 100 shares.

• 100 shares move from a seller to a buyer.
• The other buyers get nothing yet. You cannot buy a share nobody is selling.

The bill

Each share is ₹200.

100 × 200 = 20000

• 100 is how many shares moved.
• 200 is the rupee for each share.
• 20000 is the bill. That is ₹20,000.

Who gets that money:

• The buyer pays ₹20,000.
• The seller receives ₹20,000.
• The company receives nothing. The buyer bought the share from another person, not from the company. See NSE and BSE explained.

Shares still waiting

Buyers wanted 300. Only 100 were for sale.

300 − 100 = 200

200 shares are still wanted at ₹200. Nobody is left who will sell at ₹200.

Those buyers can wait. Or, if they want the shares now, they must offer a higher rupee. The factory did not change. The "for sale at ₹200" list ran out. That is enough to move the price.

The next deal

The next seller will give 100 shares only at ₹210. ₹210 is still the price of one share.

100 × 210 = 21000

• 100 is the new batch of shares. It is not the leftover 200.
• 210 is the new rupee for each share.
• 21000 is the new bill. That is ₹21,000.

The new buyer pays the new seller. The company still gets nothing.

Same 100 shares. Higher bill:

21000 − 20000 = 1000

The second buyer paid ₹1,000 more. The screen moved from 200 to 210.

What happened	Sum	Result
Shares that can trade at ₹200	the smaller of 300 and 100	100
Bill for that deal	100 × 200 = 20000	20000
Shares still wanted at ₹200	300 − 100 = 200	200
Bill for the next 100 shares	100 × 210 = 21000	21000
Extra rupees on the second bill	21000 − 20000 = 1000	1000

Dividing only checks the old price

20000 ÷ 100 = 200

You get ₹200 again. That is the price you already used. It checks the sum. It does not explain the move to ₹210. The leftover 200 shares explain the move.

A new fact can change the lists

A profit warning says profit will be lower than people expected. That is news. It is a fact about the business.

After it, buyers will pay less. Sellers are more ready to leave. Suppose the next 100 shares trade at ₹180. ₹180 is one share.

100 × 180 = 18000

The bill is ₹18,000. Compare it with the first bill.

20000 − 18000 = 2000

The same 100 shares change hands for ₹2,000 less. The screen moves from 200 down to 180. A buyer paid a seller. The company did not receive the ₹18,000.

A headline that changes nothing

Expectations are the beliefs already inside the old price. If buyers at ₹200 already knew a product was coming, this headline adds nothing:

• "The product is coming."

Supply can stay 100. Demand can stay 300. The next deal can stay ₹200. The headline was loud. The lists did not change.

Picture

100 × 200 = 20000 and 100 × 210 = 21000. Made-up example. The company received neither sum.

• The left bar is the first bill, ₹20,000.
• The right bar is the second bill, ₹21,000.
• Both bars are 100 shares.
• The gap is 21000 − 20000 = 1000.

The bars are two payments between people. They are not a vote on the whole company.

If you already know the basics

Volume is how many shares traded. Value is the rupees. In the first deal, volume is 100 shares. Value is 100 × 200 = 20000. Calling ₹20,000 the volume mixes the two up.

• Many shares, price almost still: people agreed with the old rupee.
• Few shares, price jumps: a small trade set a new rupee.

The screen has two more words.

• Bid means what a buyer will pay.
• Ask means what a seller will accept.

In the example, the bid at ₹200 wanted 300 shares. The ask at ₹200 offered 100. When that ask is gone, the next ask may be ₹210.

One deal is not the whole company. The ₹210 trade was 100 shares. It does not mean every share could be sold at ₹210 at once. It does not mean new money went into the business. Only those 100 shares moved money between two people. The daily price is the mood of that last small deal. That idea is Mr. Market.

Exercise

Try a smaller book. Buyers want 80 shares at ₹200. Sellers offer 50 shares at ₹200.

• Shares that trade: the smaller list, 50. Not 80.
• Buyers left waiting: 80 − 50 = 30. Those 30 get no share at ₹200.
• The bill: 50 × 200 = 10000. That is ₹10,000.
• The company does not receive that ₹10,000.

A wrong bill is 80 × 200 = 16000. That ₹16,000 pretends every buyer got a share. They did not. Thirty were left out, so that money does not move.

If nobody is left waiting, the price does not have to move. If buyers are left over, the next seller can ask more. That is how ₹200 became ₹210 above.

Failure mode

People think the price moves only when profit changes. Profit is one kind of news. The price also moves when the old list runs out and the next pair agrees a new rupee.

People also think every headline is news. If the lists already expected it, the price can stay at ₹200.

And the bill is not the price. ₹20,000 was 100 shares. The price was ₹200 for one share.

Checklist

1. Is this number the price of one share, or the bill for many shares?
2. At this price, how many shares are for sale, and how many are wanted?
3. After the match, who is still waiting?
4. Did a new fact change the lists, or did the headline repeat an old belief?
5. Am I calling the share count volume, and the rupees the value?

Educational only. Not investment advice or SEBI-registered research.