calculation of stock price

[djinnotonic]

Hi, I am new to these forums and to the stock market in general.

But I am curious to how exactly a stock price is determined by the exchange on a secondary market. I tried looking around a bit on the forum and on google, but couldn't come up with a conclusive answer.

What I've been able to gather so far is that the price is determined by the maximum amount of shares that have been sold for a particular asking price.

So let's say the previous price of a share was 10$ and now there have been 10 sellers asking 11$ per share and 10 sellers asking 12$ per share. There were 10 buyers for the 11$ per share and only 3 buyers for the 12$ per share, therefor the share price has increased to 11$.

But if that's the case, then that must be over a specific pre-determined time frame? Also, the following scenario seems odd:

there are 20 shares sold for 12$ and 19 shares sold for 25$, this wouldn't have an effect if the only thing that matters is the maximum number of shares sold for a particular price.

Also, do different exchanges have different ways of calculating price?

My apologies if there is somewhere a sticky on this or if it is a commonly asked question. Thanks in advance for any help.

 

[mangetout]

If I've understood the question...

It's an auction, like Ebay.

The exchange plays the role of EBay. It does not itself set the price.

It's the sellers and buyers who decide their prices.

Trading 'at the market' means buying or selling at the best available price.

(And some other details)

PS, I have 100 new, latest model iPads available. How many do you want to buy and how much for? How about 400 GBP per unit?

 

[Rhody Trader]

As noted above, the exchange does not determine prices. It merely reports them. What exactly they report depends on the price feed you're looking at. There's a transactional feed which reports the last traded price. There is also the current market rate, which is the active highest bid and lowest asking price for orders on the books.

 

[djinnotonic]

yes of course it just reports them, what I want to know is how the displayed prices are determined.

If it's the price of latest accepted order, or the biggest number of shares per price over a pre-determined timeslot, etc

 

[Rhody Trader]

yes of course it just reports them, what I want to know is how the displayed prices are determined.

If it's the price of latest accepted order, or the biggest number of shares per price over a pre-determined timeslot, etc

As I said above, if you're looking at the transactional feed the LAST value is the most recently completed transaction. If you're looking at the live bid/ask feed it is the current lowest ask price and the current high bid price. In neither case does order size (number of shares) have anything to do with what is shown. Obviously, in the case of the transaction feed, you're talking the most recent timestamp. For the bid/ask rates, though, order date/time isn't a factor. Those orders could have come in just 10 seconds ago or been on the books for days.

 

[djinnotonic]

As I said above, if you're looking at the transactional feed the LAST value is the most recently completed transaction. If you're looking at the live bid/ask feed it is the current lowest ask price and the current high bid price. In neither case does order size (number of shares) have anything to do with what is shown. Obviously, in the case of the transaction feed, you're talking the most recent timestamp. For the bid/ask rates, though, order date/time isn't a factor. Those orders could have come in just 10 seconds ago or been on the books for days.

Ah ok misunderstood your post. Thanks for the help

 

[epic_research]

There are various ways like dividend method, bond price calculation method using which a trader can evaluate price of a stock.

 

[StocksBrah]

Hi, I am new to these forums and to the stock market in general.

But I am curious to how exactly a stock price is determined by the exchange on a secondary market. I tried looking around a bit on the forum and on google, but couldn't come up with a conclusive answer.

What I've been able to gather so far is that the price is determined by the maximum amount of shares that have been sold for a particular asking price.

So let's say the previous price of a share was 10$ and now there have been 10 sellers asking 11$ per share and 10 sellers asking 12$ per share. There were 10 buyers for the 11$ per share and only 3 buyers for the 12$ per share, therefor the share price has increased to 11$.

But if that's the case, then that must be over a specific pre-determined time frame? Also, the following scenario seems odd:

there are 20 shares sold for 12$ and 19 shares sold for 25$, this wouldn't have an effect if the only thing that matters is the maximum number of shares sold for a particular price.

Also, do different exchanges have different ways of calculating price?

My apologies if there is somewhere a sticky on this or if it is a commonly asked question. Thanks in advance for any help.

what broke do you use to trade stocks?

i notice you are from the UK.. i am having trouble finding a broker to trade stocks.

 

[eqibeat]

To find the value of a stock, you need to calculate all of these future earnings (out to infinity!), and then use your own desired rate of return as a discount rate to find their present value. The infinite sum of these present values is the fair market value of the stock; or more accurately, it's the maximum price you should be willing to pay.

 

[dbphoenix]

Actually, to find the value of a stock, all you have to do is find the last price on which the last buyer and seller agreed when they completed their transaction.

Valuing a stock and valuing a company are entirely different processes.