Why is Google’s stock priced at 129$ and Microsoft at 322$ for example?
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I know this is a dumb answer, but the price is whatever someone was willing to pay that day.
If lots of people want to buy, the price will rise. If lots want to sell, it will fall.
Don’t get hung up comparing prices of company stocks directly because two stocks may represent different things. If one company’s shares are 1/1000th of the company and another’s are 1/1000000th, you’d expect them to be priced differently.
All publicly sold stock in the US must be listed in one of the US stock exchanges. The most famous is the NYSE (New York Stock Exchange).
This is an ELI5 and vastly simplifies how the market works. The Stock Exchange is basically a market for buyers and sellers to trade shares. Buyers list the shares of what they want to sell (say Apple), quantity (say 500 shares) and price they are willing to sell at ( say $900). Sellers do the same but opposite, what they want to buy, how many and what price they are willing to pay.
When the buyers price and sellers price coincides or overlaps, then a transaction is completed at that price. This sets the “last traded price” that is listed on TV screens or stock market listings. There are many buyers and many sellers and many many transactions happening all at the same time for all the different companies listed on the market. This is what sets the price and why it moves up or down.
If there are buyers willing to pay more for shares, the prices rise. If there are more sellers desperate to sell their shares, the price falls.
The “price” of a stock is just the price where the number of people willing to _sell_ at a given price is equal to the number of people willing to _buy_ at a given price. The exchanges facilitate those transactions, but it is the individual buyers and sellers that determine the price organically.
So, for example, lets say you own some XYZ corp stock and you want to sell it for $100. Problem is, no one is willing to buy it for $100 – they tell you they will only pay $80 for it. Fine, you say, I’ll sell it to you for $80 – $80 is now the price of the stock.
Now, how you determine what you are willing to buy/sell the stock for is a very complex answer involving multiple valuation techniques, each potentially producing different answers based on what assumption you put into your model. This is why prices fluctuate over time – new information and new assumptions are constantly being made, each impacting what particular buyers and sellers are willing to price their shares at.
The stock price is the price of the last whole lot of 100 stock or more to trade on an exchange. A trade happens when someone places a buy order for a higher price then current sell orders or when someone places a sell order lower then current buy orders.
When people place buy orders, that raises the price of the stock or prevents it from lowering in price. When people place sell orders, that lowers the price of the stock of prevent it from rising in price.
Entire companies exist to profit from the difference between sell and buy orders.
Prices stabilize between the highest buy order listed and lowest sell order listed.
Someone sold google stock to another for 129 so that is the price. If you want to sell a google share for 10$ just for the hell of it then for a second or so before another sale happens then the price will be 10$.
Why is Google’s stock priced at 129$ and Microsoft at 322$ for example?
Stocks are made up of shares, which are portions of a company. Normally at the start of going public, the company offers shares at a set price per share.
From this point onwards, the prices go up and down depending on market buying pressure versus selling pressure.
In addition to being influenced by the initial price offering (IPO), stock splits are where a share is split into multiple shares, and the fractions become the new share price.
So history of stock splits and other factors within an individual company, make direct share prices with another less valid.
For comparing similar companies, people are very unlikely to consider direct share price comparison – and instead will likely compare companies based on:
* Proportional/ percentage movement in price
* Market cap (the company’s overall value i.e. share price multiplied by number of shares
To have a market you need a lot of people. Then you have some that have the stock and want to sell it. They put a sell order at whatever price they are willing to sell. Then you have people that put orders are what they are willing to buy. The stock market then matches them and if there is a match then there is a sale and that’s the price. Every transaction sets a new price. The more transactions you have the smaller the spread. If you look at stocks that are very thinly traded then you will see that there are lots of pending orders that don’t match waiting for a market price order (those are the ones that say sell/buy at whatever price is available)
The stock market is an auction, the listed price is just the most recently traded price. Only shares bundled of 100 or more affect the price, and there are things like internalization and dark pools where trades can occur without effecting the price at all.
If Google and Microsoft had the exact same number of shares outstanding and the same equity and the same market demand and the same valuations then the price could be close to the same. But that’s not reality.
Two different companies, providing different services and products, with different shares outstanding, different equity structures and different relative valuations result in different stock prices.
Outside of maintaining compliance with exchange requirements. Stock price is largely irrelevant on its own.
Imagine stock prices are like the prices of toys in a store that can go up and down every day. These prices are decided by how much people want to buy or sell those toys.
Now, for stocks, the price is influenced by a few important things. First, it depends on how well the company is doing. If the company makes lots of money and grows, people might want to buy its stock, so the price goes up. If the company isn’t doing well, the price might go down.
Other things that affect stock prices are what’s happening in the world. If there’s good news, like the economy is strong or a company is making a cool new product, prices can go up. But if there’s bad news, like a problem in the world or a company messing up, prices might drop.
Anticipating these changes is like guessing what might happen next. People look at lots of information about companies and the world to make their best guess. It’s a bit like trying to guess if it will rain tomorrow by looking at clouds today. But remember, nobody can predict the future perfectly, just like we can’t be 100% sure about the weather.
So, to sum up, stock prices change because of how companies are doing and what’s happening in the world. People try to guess these changes by looking at clues, but it’s not always easy to know for sure.
Now, to know how we get the first price, imagine a company is like a special kind of cake that people want to buy a piece of. When a company first starts and wants to share its cake with others, it does so by turning the cake into something called “stocks.” These stocks are like pieces of the cake that people can buy.
Now, deciding the price of these stocks is a bit like a game. The company and some special grown-ups get together and think about how much they believe each piece of cake is worth. They consider things like how big the cake is (how well the company is doing), how many people might want a piece (investors), and what other similar cakes (companies) are being sold for.
Once they agree on a price for each piece of cake (stock), that becomes the initial stock price value. People who really like the company and want to own a piece of the cake can buy these stocks at that price. As time goes on and the company gets better at making cake and more people want a piece, the price of the stocks can go up or down, just like the prices of toys in a store (as mentioned before)
So, when a company starts, it sets a price for its cake pieces (stocks) based on how much it thinks they’re worth based on their own feelings, and people who want to be a part of the company can buy those stocks to join in the fun!
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