Sure, there are tons of factors that determine the price of a stock or cryptocurrency (Security). I’ve known that forever. But when I go onto Robinhood and want to buy something who gets to decide that price?
The price of any publicly traded asset (stock, cryptocurrency, and even skins in video games are determined by the order book. If you are like me. You started trading before you knew the difference between a market order and a limit order.
A market order means you are either selling or buying an asset at the best available rate. You select the amount you want to buy and and the order is filled. (See Dangers of Market Orders)
When you set a limit order, a few things change. You set an amount to buy and you choose what price you want to pay, at the same time sellers choose the amount they want to sell and at what price. Where the two meet is what determines the price. (Also known as the “Spot Price”)
In the image above you can see the sell orders in red and the buy orders in green. When there is more buying pressure than sell orders the price tends to go up. The inverse is also true.
As I mentioned above, many factors affect what people are willing to pay for an asset. This just shows what determines the current price.
Cover Image by Csaba Nagy from Pixabay
If I can understand something, so can you.