How the stock market actually works?
Different companies have shares and people buy a portion of these shares, but how do the shares increase and decrease daily? Is it just based on how well that company does daily? How does it all work?
Key Points
the price of a share of stock is just the perceived value (and the future value) of the company. Think of the stock market as Ebay. The price of a stock will move higher if more people believe it is undervalued (ie selling for less than you think it is worth, maybe an Iphone for $50) As more people move to buy the stock, it will increase (theoretically) until it becomes overpriced(say the Iphone moves to $250) and people begin to sell. At some point it is in equillibrium, with matched buyers and sellers agreeing on a price. If there is low demand for a stock, the price will keep falling until it reaches a level that people think it is worth, and then it will hold there until the next change in perception. Stock markets are merely the middlemen who match buyers and sellers. There is no method for deriving the value of a stock at any given time decisively, a lot of it has to do with the perceived future outlook for the company and nobody has ever been able to predict the future!
The top answer is a really good answer.
One other thing to point out is that if company A has a stock price of $50 and company B has a stock price of $25 it doesn’t mean company A is a bigger company or worth more because company A might have only issued 100 so it would be worth $5000 and company B may have issued 1,000 shares so B would be worth $25000.
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