Market Dynamics & Price Formation

Price Formation Chart

This chart shows the impact of changing parameters on the stock price over time.

What is this? The order book shows pending buy and sell orders at different price levels.

Red prices:

Ask prices (sell orders above current price)

Green prices:

Bid prices (buy orders below current price)

Numbers:

Order volume (number of shares available at that price)

Demand (D): 150,000

Supply (S): 100,000

Outstanding Shares (O): 1,000,000

Market Sensitivity (k): 0.05

Dividend Impact (d): 0.20

Base Price: $50.00

ΔP = k × (D - S)/O + d

New Price: $50.20

Change: +$0.20

Market Cap = Share Price × Outstanding Shares

$50.00 × 1,000,000 = $50,000,000

Market Cap: $50,000,000

Change: +$200,000