How exactly do stock prices get determined?

(Your sub questions are specifically answered at the end (in short). You can also directly scroll that section)

The price is calculated by electronically matching bids and offers for a particular share recorded an electronic limit order book (ELOB). When you place an order to buy a share at a certain price that is called your “bid” and when you place an order to sell your..........blah blah blah blah........

Getting bored? Going upon your head, huh?

Okay, let's make it easy.

Imagine you bought a pen for 10 bucks. Next day a friend of your offered you to sell it for 15 to him.

Now my question. What's the price of pen?

Absolutely 15. You can encash 15 bucks by selling it.

You rejected his offers hoping that may your other friends bid more than 15.

Next day in school, your friends got a sight of your pen. Again 5 of your friends offered you to sell it for 10, 15, 20, 25, 30 respectively.

Now what's the price?

Yeah, 30. The highest bidder urge to pay 30.

Now again you rejected the offer hoping that tomorrow its price may hike more.

Exactly what you thought happened. You and your pen become popular in school and the highest amount offered by people was 50.

Now your greed acted inside you, so you again rejected the offers hoping for some more appreciation in price.

This time the luck was not with you. Acompanion bought more unique pen than your.

This affect the price of your pen a lot. Most of your customer attracted by your companion's pen. Your pen loosed 90% of its value and only bunch of people were ready to pay you 5 bucks only.

This is how demand and supply affect the price of a product. And stocks are a product. When investors are optimist and ready to pay higher cash than its current price, price appreciated and in pessimist behaviour price drops.

There was a huge demand of your in market and supply was only one (assumed that only one pen of your brand was available in market).

But after your companion's entry, supply increased and demand remain the same, price dropped.

It may also possible that some are ready to pay 15 and some are ready to pay 5 bucks. Although in real world you'll sell your pen to the one who is offering 15 because you know there person but in the world of stock market, you don't know from whom you're are buying stocks or to whom you're selling your stocks. In this case average price is quoted like (in above case) 10 (5+15/2) provided weightage of buyer and seller are equal.

I can also make it complex by saying that only 2 persons are ready to buy your pen at 15 bucks and 13 students for only 5 bucks. In this case weighted average price will be calculated.

But there's no need to go much deeper just keep a small concept in your mind:

• When demand > supply, price increases.
• When demand < supply, price decreases.

BSE and NSE have huge algorithm machines which determine the price of stocks on the basis of volume traded. Lakhs of people and crores of shares are traded everyday.

You can get every information regarding volume traded, bidding, offering etc on web (a quick example is illustrated below)

(Image from Moneycontrol App)

There are also many other reasons for change in price like stock split, mergering, demergering, dividend distribution etc.

What? Price changes due to dividend distribution, how is it possible?

Yeah, you heard it right, if interested read an example of Indian stock recently happen on 6th march. (Price declined due to dividend distribution)

Now lets tackle your sub questions in prime question detail.

Ques: If I buy 1 lac shares of the above stock at price 271.55 .Will the stock price rise ?

Yeah, the stock price will rise to 271.55 as you're are the highest bidder among all investors and your high bid will push the stock price up. (Subject to many other reasons, sometime people didn't disclose their bid/offer in public)

But as shown in the image above, offerers are very low so it'll be hard to execute your 1 lakh share bid.

Ques: If I sell 50,000 shares from my demat at price 270.70 ,will the stock price fall ?

Same reason as above, you're the lowest offerer among all others, so it'll turn the price down. (Subject to many other reason, its just a basic reason)

Ques: What does "Best 5 Bids/Offers table" show?

I suppose this should be your first question.

• Best 5 bids - next best nearest price at which people are ready to buy stock.
• Best 5 offers - next best nearest price at which people are ready to sell stock.

Ques: If only 10 Qty. at price 271.55 if someone place buy for 20 quantity. what will happen ?

As per my knowledge only 10 stocks will be traded. I can't clearly say about it as it had never happened with me. If anybody know about it then notify in comments.

(#1 Edit:

Some time it happens that you have put a buy or sell limit price to Rs 100 and then share go to 100 and come back again to lower value but your trade does not get executed.

So why this happens? Because of 2 reasons:

• There was no one for selling at Rs 100 (very rare case)
• Enough quantity was not available at Rs 100, for example 500 quantities are available at Rs 100 but before you, someone else order was pending so his order will get executed first than yours.

Thanks Sagar for sharing your knowledge)

(#2 Edit: there's no comment below retaining to Sagar because of merging of question. Although their details were different, so you may face some problem with other answers)