REALLY basic question about stock price

ProStuart · #1 (**permalink**) 05-21-2010, 11:47 AM

Hey all, I'm a noob to the whole stock/investment world, so please treat me gentle

I have a really basic, simple question to ask about stock price and how it goes up/down.

I've read a lot about what affects the stock price - company performance/earnings/economy, etc. However, what I can't seem to find out is - who actually sets what the price is?

Say a stock is available to buy at $1 and sell at $0.8:

Joe Bloggs goes and buys 1,000 shares at $1. Assuming a stable economy and no major newsworthy events occur, would the share price be affected by this purchase? If so, who sets the new share price?

Joe's brother thinks this sounds like a good investment and buys 10,000 shares - would the share price be affected by this purchase? If so, who sets the new share price?

I hope I'm being clear on what my exact question is, but please post if that's not the case!!

Thanks

Stu

jefffou · #2 (**permalink**) 05-21-2010, 02:46 PM

Generally, small purchases of stock do not affect stock market prices. Exceptions may occur if a stock is "thinly" traded, meaning, there's not much buying and selling going on for this particular comapny's stock. However, holding a LOT of small company stock means selling it piece by piece, as buyers come along willing to pay what the seller is willing to sell it for.

Buyers pay a "bid" price, which is a little more than "ask" price. The ask price is price received by the seller for selling the stock.

The difference goes to pay various fees to make the transaction take place.

As always a stock is worth EXACTLY value determined by the buyer and the seller upon initiating the transaction.

Hope this helps.

C9Consulting · #3 (**permalink**) 05-21-2010, 03:23 PM

In the end, the stock market is a supply/demand market. The only reason a stock has value is because two individuals have decided on that value. Company earnings/performance/economy only affects how the consumer values the company.

If you could get enough people to agree, you could technically, own a company with negative earnings, that has a $500 stock price.

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