In this edition of The Motley Fool's "Ask a Fool" series, Motley Fool One analyst Jason Moser takes a question from a reader who asks: "If every share is owned 100% of the time, then what is a "sell off" and how are share prices determined? I always thought selling reduced the price and buying drove prices up -- but if there is an equal number of buys and sells, this can't be." Jason explains that in some cases, buying will drive prices up, but that's when a stock is in demand. But consider a company that has just announced a lot of bad news, prompting investors to head for the exits on the stock. While for every seller there's also a buyer, there's also a fundamental negotiation at work here. Buyers are going to buy only when they feel the price represents enough of a bargain to account for whatever risk may be involved. The buying here isn't pushing up prices; it's soaking up the inventory that's offered up for sale because the sellers want out. And that ultimately is what can cause a sell-off.
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Ask a Fool: How Are Share Prices Determined by Buying and Selling?
What is a "sell-off" if all shares are owned all the time, and how do buying and selling determine a stock price?
About the Author
Jason Moser is a Senior Investment Analyst and Lead Advisor at The Motley Fool and has been with the company since 2010. Jason covers payments, fintech, cloud communications, cloud computing, and tech stocks. He holds a B.A. in Economics from Wofford College.
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