Bid and Ask
How are stock prices set? How do stock prices change?
To understand how a stock price is determined, we need to understand how a stock's Bid and Ask work. To explain how bid and ask work, we turn to super-slo-motion.
Imagine that the last trade in XYZ stock took place at $50 per share. That is the price that will display on the ticker, but that is the price that XYZ stock was THEN, not NOW. What is XYZ stock's price now?
The answer depends on whether you are buying or selling and what kind of order you are using.
If we slow time way down we can see exactly what is happening. Let's start the stopwatch at 10:00 AM when XYZ stock trades at $50 per share. (While things can move in fractions of a second, we are just going to use whole seconds to make things simple.)
At 00:01 there IS NO PRICE for XYZ stock! How can that be? Because no trade excutes at 00:01, so there is no price. The only price that exists is the old price from 00:00 which was $50.
What does exist at 00:01 is the bid and the ask for XYZ stock.
Until a new bid or a new ask come along, or until another market order is executed, there will not be a new price set for the stock.
So, that is how a stock price is set.
Now, How Does a Stock Price Change?