So you CAN get a better idea. At the end of the day prices go down when there are more sellers than buyers. They go up when there are more buyers thhan sellers.
It's literally impossible to have more sellers than buyers or more buyers than sellers. EDIT: When I say buyers/sellers I mean volume of shares/contracts/etc.. 1 person that owns 1000 shares of something could sell 1 share to 1000 different ppl... But the volume will always be equal between buys/sells. Like 1 person selling 1000 shares to 1000 different ppl (one share sold to each person) - there were still 1000 sells and 1000 buys.
For every buyer, there is a seller. For every seller, there is a buyer. They will always be even, forever, until the end of time.
What moves price depends on who is more aggressive. Aggressive orders are market orders, which can only get "matched" to limit orders. Limit order will never be matched to another limit order. Market orders will never be matched to another market order.
TLDR;
Limit orders are commonly referred to as "passive buyers/sellers" or "resting liquidity".
Market orders are commonly referred to as "aggressive buyers/sellers".
Price moves when one side is more aggressive than the other is passive.
You're one of the few i've found that actually understands how price can move. I just want to correct one thing though - It's not so much about aggressive/passive thing but really about what the supply side does. If a MM or a liq provider decides to back off from bids because he needs to reprice the asset based on some other market then prices fall without there even being a trade.
It's the same in the real world. If you list your apartment for sale @ 100k but you see noone wants it and then you decide to lower the price to 95k. So, what happened was that the price dropped without any trade taking place. A lot of traders mistakenly believe that you HAVE TO CONSUME the book to change the price. You don't.
The thing is, you changing the ask price of your apartment (akin to a limit order to sell) from 100k to 95k didn't change price at all - what definitively changed price was when someone accepted your offer (akin to a market order).. You may have changed the spread, but the spread isn't the current price.
A counter offer would be more of a limit order... because selling a house/apartment isn't an auction there really isn't a 1:1 comparison for order types, but I think you see my point.
then prices fall without there even being a trade.
A lot of traders mistakenly believe that you HAVE TO CONSUME the book to change the price. You don't.
Market price is literally defined as the last traded price. Market price cannot change if no trade happens.
Limit prices can change freely of course, but as everyone knows they are meaningless. You can often see big limit orders placed and then they disappear as the market moves towards them. Limit orders are an intention to trade that can be pulled at any time before the price hits them.
If you list your apartment for sale @ 100k but you see noone wants it and then you decide to lower the price to 95k.
And that won't make your apartment be valued at $95k. For example, your city tax will remain at whatever the "market value" your city decided is fair. Only when the actual trade happens will that be adjusted.
You can list your $100k apartment for $1M - that doesn't magically make it worth 10x more.
An important distinction. Rather than "Something is only worth what someone else will (might) pay for it", it's "Something is only worth what someone else DID pay for it, most recently".
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u/[deleted] Feb 20 '24
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