Bid-Ask, Volume & Supply and Demand in Stocks Explained
In the Mplus app, you can see the Market Depth displayed as Bid and Ask. For those who already understand Buy Queue and Sell Queue — Buy Queue is the Bid, while Sell Queue is the Ask.
1. Is It True That Stock Prices Rise When Demand Exceeds Supply?
Yes, fundamentally, stock prices do move based on the principle of supply (offering) and demand (request). When demand (many want to buy) exceeds supply (many want to sell), the stock price tends to rise. Conversely, if supply exceeds demand, the price will fall.
2. Is Supply & Demand the Same as Bid and Ask in Market Depth?
Supply and demand in stocks can be observed through Bid (the price a buyer is willing to pay) and Ask (the price a seller is willing to accept) in market depth. If the number of Bids is higher and more aggressive compared to Asks, this signals high demand and could cause the price to rise. However, it is important to understand that Bid and Ask only show intention, not actual transactions. The price will only move when a transaction occurs at a specific price.
3. Why Does the Price Sometimes Not Rise Even When Buy Volume Is High?
This situation commonly occurs, especially with less actively traded stocks or when the price has become "saturated" at a certain level. There are several reasons:
- Transactions happen at the same price: Even though buy volume is high, if all buy and sell orders occur at the same price (for example, 10 sen), the price will not move. The price only changes if a buyer is willing to buy at a price higher than the current Ask, or a seller is willing to sell at a price lower than the current Bid.
- Market maker or large seller holding the price: Sometimes a party places a large sell order at a specific price (for example, 10 sen), so even though many are buying, as long as that sell order is not fully absorbed, the price struggles to move up.
- High volume = many transactions, not necessarily a price increase: Volume only shows activity, not price direction. If volume is high but the price does not move, it means a lot of shares are changing hands at the same price.
- Sentiment & Fundamentals: Sometimes even though many are buying, market sentiment or company news does not support a price increase, so the price remains flat.
4. Is Looking at Charts Alone Enough to Understand Stock Price Movement?
Looking at charts alone is not enough. Charts are important for technical analysis (trend, support/resistance, volume, candlestick pattern), but stock price movement is also influenced by:
- Fundamental Factors: Company performance, profit and loss, corporate news, dividends, and so on.
- Market Sentiment: Economic news, politics, global events, and investor perception.
- External Factors: Changes in government policy, interest rates, inflation, and others.
- Activity of large institutions: Sometimes large institutions (fund managers) move the price, not just retail investors.
Conclusion
Stock prices rise when demand exceeds supply, and vice versa. Bid and Ask in market depth provide a picture of supply and demand, while high volume does not necessarily mean the price will rise. Combine technical and fundamental analysis to understand stock movement more accurately.
FAQ (Frequently Asked Questions)
What do Bid and Ask mean in stock trading?
Bid is the highest price a buyer is willing to pay for a stock, while Ask is the lowest price a seller is willing to accept. The difference between the two is called the spread, and it indicates the liquidity of a stock in the market.
How does trading volume affect stock price movement?
Trading volume shows the number of shares traded within a certain period. High volume with a rising price indicates strong buying interest, while high volume with a falling price indicates selling pressure. Low volume suggests a lack of confidence in the price movement.
What is the relationship between supply and demand and stock prices?
When demand exceeds supply, the stock price will rise because buyers compete to purchase. Conversely, when supply exceeds demand, the price will fall because sellers compete to sell at a lower price.
How do you read market depth to make trading decisions?
Market depth shows the number of buy (bid) and sell (ask) orders at each price level. If the bid queue is thicker than the ask queue, this indicates strong buying pressure. Conversely, a thick ask queue indicates selling pressure. Use this information alongside chart analysis for more accurate decisions.
Understanding the concept of bid-ask, volume, and supply-demand is an essential foundation in stock trading. With this knowledge, you can read the market with more confidence and make smarter decisions.
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