Question: Question about stock prices. Does the system favor buyers or sellers?
Say for example, stock A bid price is 0.90 and the ask price is 1.00. Let's say person 1 wants to buy the stock and sets his limit at 0.99 and person 2 wants to sell his shares for a limit 0.91. What exactly happens in this situation? Both participants are willing to buy/sell within their budget limit. Does the market favor the buyer and exchange the stock at 0.91 or does it favor the seller and exchanges the stock at 0.99?
Answer:
The system favors neither. No sale takes place.
You need to understand the market sytems. Not sure where you are but in UK (and maybe US) there are two systems in operation. One is called order driven (the orders going onto the system make the price (order book) and the other is called market driven where Market Makers make the prices. If you understand these systems you will see your Question is not relevant. The links below explain the market driven system and the video explains, hopefully, the order driven system.
They would both be filled cause other Bid/ask would surely come along and fill them, ...and Market Orders....or unless your Limit was too far out..
Let's say person A places an order to buy 100 shares of XYZ at $10 a share but there no sellers yet. The quote board would read " XYZ bid $10 x 100 ".
Let's say person B comes in and places an order to sell 50 shares at $11 a share, they look at the order book and see that there's a buyer ( person A ) who's willing to pay $10 a share but that's less than what person B wanted so the order goes onto the book and the board says " XYZ bid $10 x 100 ask $11 x 50 ".
Now person C comes in and places an order to sell 100 shares at $12 a share, they consult the order book and only find a buyer willing to pay $10 a share so person C's order also goes on the order book and the board reads " XYZ bid $10 x 100 ask $11 x 50 ".
Person D comes in and places a market order to buy 100 shares of XYZ, they look at the order book and see that the lowest seller is person B with 50 shares at $11 per share so person D gets 50 shares at $11 per share and the board reads " XYZ last trade $11 bid $10 x 100 ask $12 x 100 " but person D wanted another 50 shares and the next lowest order on the books is person C's order of 100 shares at $12 so D gets another 50 shares at $12 per share and the board reads " XYZ last quote $12 bid $10 x 100 " ask $12 x 50 ". Notice that person C's still has an order to sell 50 shares at $12 left on the books and that order will either be filled as the market permits or person C may cancel the order.
The system doesn't favor either buyer or seller, they both get what they asked for when it's available and they both get the best price on the books that meet their requirements and there's no negotiation on the prices by the market, the buyers and sellers can cancel their orders and place new ones at prices that are more likely to be traded should they decide to do so.