Are stock prices purely (or mostly) only based on human action?
Stock prices are indeed proportional to supply and demand. The greater the demand for a stock, the greater the price. If they are, would this mean that stock prices completely depend on HOW the public FEELS/THINKS about the stock instead of what it is actually worth? This is a question people have argued for decades. Literature in behavioral finance suggests that investors are not rational and thus markets are subject to wild fluctuation based on investor sentiment. The efficient market theory (EMT) argues that the stock market is efficient and that a stock's price is an accurate reflection of its underlying or intrinsic value. This philosophy took birth with Harry Markovitz's efficient frontier, and Eugene Fama is generally seen as the champion of EMT in the 1960's and onward.  Most investors today would agree that the markets are not perfectly efficient, and that a stock's price does not always reflect its value. The renowned professor Benjamin Graham once wrote: In the short run, the market is a voting machine but in the long run it is a weighing machine. This suggests that prices in the short term are mainly influenced by how people feel about the stock, while in the long run the price reflects what it's actually worth. For example, people are really big fans of tech stocks right now, which suggests why LinkedIn (stock: LNKD) has such a high share price despite its modest earnings (relative to valuation). People feel really good about it, and the price might sustain if LinkedIn becomes more and more profitable, but it's also possible that their results won't be absolutely stellar, so the stock price will fall until it reflects the company's fundamentals.
Because swing trading isn't the only reason to buy a stock, and it's not the only way to make money on a stock.  I do not have the expertise to make advice one way or the other, but I personally I feel swing trading is one of the worse ways to invest in the stock market. To answer your specific questions: In the previous post, I outlined a naive trade intended to make $1,000 off a $10k buy, but it was shown this would likely fail, even if the stock price would have increased by 10% had I not placed the trade. Another way to state this is that my trade would disrupt the stock price, and not in my favor at all. So, that means I'd have to settle for a smaller trade. If I bought $100 worth of the stock, that size of a buy wouldn't be too disruptive. I might succeed and get $10 out of the trade (10% of $100). But my trade fee was $8 or so... To summarize, you are completely correct that even hoping for gains of 10% on a consistent basis (in other words, after every single trade!) is totally unrealistic.  You already seem to understand that swing trading on low-volume stocks is pointless.  But your last question was... So how do people make any significant money trading low volume stocks--if they even do? I assume money is made, since the stocks are bought and sold. I have some guesses, but I'd like to hear from the experts. ... and in a comment: Then if no one does make significant money trading these stocks...what are they doing there on the market?  The answer is that the buying and selling is mostly likely not by swing traders.  It's by investors that believe in the company.  The company is on the market because the company believes public trading to be an advantageous position for them to receive capital investments, and there are people out there who think that transaction makes sense.  In other words, real investing. Let's assume that the bonds have a par value of $1,000.  If conversion happens, then one bond would be converted into 500 shares.  The price in the market is unimportant.  Regardless of the share price in the market, the income per share would be increased by the absence of $70 in interest expense.  It would be decreased by the lost tax deduction.  It would be further diluted by the increase in 500 shares.  Likewise, the debt would be extinguished and the equity section increased.  Whether it increased or decreased on a per share basis would depend upon the average amount paid in per share in the currently existing structure, adjusted for changes in retained earnings since the initial offering and for any treasury shares. There would be a loss in value, generally, if it is trading far from $2.00 because it would be valued based on the market price.  Had the bond not converted, it would trade in the market as a pure bond if the stock price is far below the strike price and as an ordinary pure bond plus a premium if near enough to the strike price in a manner that depends upon the time remaining under the conversion privilege.   I cannot think of a general case where someone would want to convert below strike and indeed, barring a very strange tax, inheritance or legal situation (such as a weird divorce), I cannot think of a case where it would make sense.  It often does not make sense to convert far from maturity either as the option premium only vanishes well above $2.  The primary case for conversion would be where the after-tax dividend is greater than the after-tax interest payment. That's exactly what immunofort is saying, and it lines up with established financial theory (well, some of it).  The general argument is that stocks are priced according to what risks they're exposed to.  Several (although not all) of the major financial economics theories propose (and find empirical evidence for this) that the market as whole is a risk factor, so individual stocks would be priced in part based on how correlated they are with the market.  Strictly speaking, the risk free rate is purely theoretical and can't be directly observed, but the US T-bill yield is usually considered to be a pretty good proxy for it. "Being ""Long"" something means you own it.  Being ""Short"" something means you have created an obligation that you have sold to someone else.  If I am long 100 shares of MSFT, that means that I possess 100 shares of MSFT.  If I am short 100 shares of MSFT, that means that my broker let me borrow 100 shares of MSFT, and I chose to sell them.  While I am short 100 shares of MSFT, I owe 100 shares of MSFT to my broker whenever he demands them back.  Until he demands them back, I owe interest on the value of those 100 shares.  You short a stock when you feel it is about to drop in price.  The idea there is that if MSFT is at $50 and I short it, I borrow 100 shares from my broker and sell for $5000.  If MSFT falls to $48 the next day, I buy back the 100 shares and give them back to my broker.  I pocket the difference ($50 - $48 = $2/share x 100 shares = $200), minus interest owed.  Call and Put options.  People manage the risk of owning a stock or speculate on the future move of a stock by buying and selling calls and puts.  Call and Put options have 3 important components.  The stock symbol they are actionable against (MSFT in this case), the ""strike price"" - $52 in this case, and an expiration, June.  If you buy a MSFT June $52 Call, you are buying the right to purchase MSFT stock before June options expiration (3rd Saturday of the month).  They are priced per share (let's say this one cost $0.10/share), and sold in 100 share blocks called a ""contract"".  If you buy 1 MSFT June $52 call in this scenario, it would cost you 100 shares x $0.10/share = $10.  If you own this call and the stock spikes to $56 before June, you may exercise your right to purchase this stock (for $52), then immediately sell the stock (at the current price of $56) for a profit of $4 / share ($400 in this case), minus commissions.  This is an overly simplified view of this transaction, as this rarely happens, but I have explained it so you understand the value of the option.  Typically the exercise of the option is not used, but the option is sold to another party for an equivalent value.  You can also sell a Call.  Let's say you own 100 shares of MSFT and you would like to make an extra $0.10 a share because you DON'T think the stock price will be up to $52/share by the end of June.  So you go to your online brokerage and sell one contract, and receive the $0.10 premium per share, being $10.  If the end of June comes and nobody exercises the option you sold, you get to keep the $10 as pure profit (minus commission)!  If they do exercise their option, your broker makes you sell your 100 shares of MSFT to that party for the $52 price.  If the stock shot up to $56, you don't get to gain from that price move, as you have already committed to selling it to somebody at the $52 price.  Again, this exercise scenario is overly simplified, but you should understand the process.  A Put is the opposite of a Call.  If you own 100 shares of MSFT, and you fear a fall in price, you may buy a PUT with a strike price at your threshold of pain.  You might buy a $48 June MSFT Put because you fear the stock falling before June.  If the stock does fall below the $48, you are guaranteed that somebody will buy yours at $48, limiting your loss.  You will have paid a premium for this right (maybe $0.52/share for example).  If the stock never gets down to $48 at the end of June, your option to sell is then worthless, as who would sell their stock at $48 when the market will pay you more?  Owning a Put can be treated like owning insurance on the stock from a loss in stock price.  Alternatively, if you think there is no way possible it will get down to $48 before the end of June, you may SELL a $48 MSFT June Put.  HOWEVER, if the stock does dip down below $48, somebody will exercise their option and force you to buy their stock for $48.  Imagine a scenario that MSFT drops to $30 on some drastically terrible news.  While everybody else may buy the stock at $30, you are obligated to buy shares for $48.  Not good!  When you sold the option, somebody paid you a premium for buying that right from you.  Often times you will always keep this premium.  Sometimes though, you will have to buy a stock at a steep price compared to market.  Now options strategies are combinations of buying and selling calls and puts on the same stock.  Example -- I could buy a $52 MSFT June Call, and sell a $55 MSFT June Call.  I would pay money for the $52 Call that I am long, and receive money for the $55 Call that I am short.  The money I receive from the short $55 Call helps offset the cost of buying the $52 Call.  If the stock were to go up, I would enjoy the profit within in $52-$55 range, essentially, maxing out my profit at $3/share - what the long/short call spread cost me.  There are dozens of strategies of mixing and matching long and short calls and puts depending on what you expect the stock to do, and what you want to profit or protect yourself from.  A derivative is any financial device that is derived from some other factor.  Options are one of the most simple types of derivatives.  The value of the option is derived from the real stock price.  Bingo?  That's a derivative.  Lotto?  That is also a derivative.  Power companies buy weather derivatives to hedge their energy requirements.  There are people selling derivatives based on the number of sunny days in Omaha.  Remember those calls and puts on stock prices?  There are people that sell calls and puts based on the number of sunny days in Omaha.  Sounds kind of ridiculous -- but now imagine that you are a solar power company that gets ""free"" electricity from the sun and they sell that to their customers.  On cloudy days, the solar power company is still on the hook to provide energy to their customers, but they must buy it from a more expensive source.  If they own the ""Sunny Days in Omaha"" derivative, they can make money for every cloudy day over the annual average, thus, hedging their obligation for providing more expensive electricity on cloudy days.  For that derivative to work, somebody in the derivative market puts a price on what he believes the odds are of too many cloudy days happening, and somebody who wants to protect his interests from an over abundance of cloudy days purchases this derivative.  The energy company buying this derivative has a known cost for the cost of the derivative and works this into their business model.  Knowing that they will be compensated for any excessive cloudy days allows them to stabilize their pricing and reduce their risk.  The person selling the derivative profits if the number of sunny days is higher than average.  The people selling these types of derivatives study the weather in order to make their offers appropriately.  This particular example is a fictitious one (I don't believe there is a derivative called ""Sunny days in Omaha""), but the concept is real, and the derivatives are based on anything from sunny days, to BLS unemployment statistics, to the apartment vacancy rate of NYC, to the cost of a gallon of milk in Maine.  For every situation, somebody is looking to protect themselves from something, and somebody else believes they can profit from it.  Now these examples are highly simplified, many derivatives are highly technical, comprised of multiple indicators as a part of its risk profile, and extremely difficult to explain.  These things might sound ridiculous, but if you ran a lemonade stand in Omaha, that sunny days derivative just might be your best friend..." "Not going to pretend to know what any of that actually means mate, haha! But if it involves Brownian Motion/Ito then you might find something relatable in that paper. Plenty of stuff outside that, but most not as ""mathematically clean"" (ie will involve hacks to fit observed data), or on the flipside closer to philosophical stuff like Mandelbrot and (sigh) Taleb, who more or less do a great job of explaining why the gospel models are all crap (which is reasonable), and that real world markets can't be bunged into a nice cookie-cutter model." "For some studies on why investors make the decisions they do, check out  For a more readable, though less rigorous, look at it, also consider Kahneman's recent book, ""Thinking, Fast and Slow"", which includes the two companion papers written with Tversky on prospect theory. In certain segments (mostly trading) of the investing industry, it is true that something like 90% of investors lose money. But only in certain narrow segments (and most folks would rightly want traders to be counted as a separate beast than an 'investor').  In most segments, it's not true that most investors lose money, but it still is true that most investors exhibit consistent biases that allow for mispricing. I think that understanding the heuristics and biases approach to economics is critical, both because it helps you understand why there are inefficiencies, and also because it helps you understand that quantitative, principled investing is not voodoo black magic; it's simply applying mathematics for the normative part and experimental observations for the descriptive part to yield a business strategy, much like any other way of making money." "It is not clear when you mean ""company's directors"" are they also majority owners.   There are several reasons for Buy;   Similarly there are enough reasons for sell;   Quite often the exact reasons for Buy or Sell are not known and hence blindly following that strategy is not useful. It can be one of the inputs to make a decision." "If we can agree that 2010 was closer to the low of 2009 than 2007 then the rich did all the buying while the super-rich did all the selling. http://www2.ucsc.edu/whorulesamerica/power/wealth.html Looks like the rich cleaned up during the Tech Crash too, but it looks like the poor lost faith. That limited data makes it look like the best investors are the rich. Market makers are only required by the exchanges to provide liquidity, bids & asks.  They aren't required to buy endlessly. In fact, market makers (at least the ones who survive the busts) try to never have a stake in direction.  They do this by holding equal inventories of long and shorts.  They are actually the only people legally allowed to naked short stock: sell without securing shares to borrow.  All us peons must secure borrowed shares before selling short. Also, firms involved in the actual workings of the market like bookies but unlike us peons who make the bets play by different margin rules.  They're allowed to lever through the roof because they take on low risk or near riskless trades and ""positions"" (your broker, clearing agent, etc actually directly ""own"" your financial assets and borrow & lend them like a bank). http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p004001.pdf This is why market makers can be assumed not to load up on shares during a decline; they simply drop the bids & asks as their bids are hit."