You can check the value of stocks share online, in apps on your phone etc… But what is that value really? And how do we know on real time how the value has changed.
For example, if a company increases profits its value in the stocks will increase, but what is recording the incomes of the company? Is it connected to a similar system that the bank uses to store money? Is it similar to an internet network?
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The last trade is basically the current price, so long as the stock is constantly being traded there will be a recent trade to give a live price.
The value is literally how much you want to pay for it and how much the other guy wants to sell you for. The number you get in the app or whatever is usually the last price that someone paid for.
You can sell your stock however much you want, if it’s too high then nobody would be buying. If it’s too low then you’re losing money.
Company profit doesn’t directly affect the stock price itself but when the company makes more money, more people want to buy stock and fewer want to sell(opposite if the company is doing bad) driving the price up as people are willing to pay more for the stock thus increase the “Value” you get from the app.
The value of stocks is also based on how many people wish to sell/buy them.
If there are lots of people that want to sell but only few that want to buy the price will drop. The few people willing to buy will do so by buying the cheapest available stocks and the rest will wait for new buyers to appear. This will make the price drop if many more sellers appear and only a few more buyers, the new sellers will offer their stocks at lower price to l make sure to sell them, and the buyers yet again will buy the cheapest stocks. This causes the prices of stocks to go down
It works the same the other way. If many people wish to buy and only few wish to buy they will sell to the highest bidder, driving the price up.
So the stock price is mainly influenced by supply and demand of the stocks rather than company’s profits.
The value of stocks and shares is set by what the last person paid to buy them. Financial institutions have direct access to the market, they place a bid to either buy or sell (10000 shares at $100 each) and if the bid goes through then that sets the price. For large companies the price is fluctuating constantly. For penny stocks where volume can be low the price may only change every few hours or even days.
Private individuals don’t have direct access to the market, they go via market makers. Private investors don’t generally sell shares in a quantity that interests institutions, and it may be difficult for a buy or sell to be fulfilled for a private individual because it requires a matching buy/sell from other individuals. The market maker keeps a float of shares, they buy them from private investors slightly below market rate and sell to private investors at a slight premium. They make money from the small price delta.
Stock quotes are literally the last trade of shares, where a buyer and seller agreed to trade at that price. While things like corporate profits and overall economic conditions affect value perception, the price in quotes is just the last actual transaction.
People have already perfectly summarized how you get the trading price instantly, but I’d like to talk a bit about the difference between price and value.
Here the misconception in your question is that we know their value. We are shown by the exchanges their trading price at that time.
For example, how much is the life of a dog worth (its value)? Probably priceless. Nonetheless, if you wanna buy a golden retriever it has a price. But what you’re paying is actually an spread over the cost of breeding and delivering the golden retriever.
For companies both value and price can usually be expressed in monetary sums but they are different things. The EV is what it is worth, and for it Economics and Finance may have some standardized formulas and ratios but it is still an arbitrary way to value the company.
You could say that the value of company is what the last buyer was willing to pay. But there is other factors as crisis, premiums and so forth.
The price you see on the internet is the price for one share. A block trade or the sale of whole company may induce in a premium or a discount. See e.g the twitter deal.
> You can check the value of stocks share online, in apps on your phone etc.
These apps report *share price*.
Imagine trading Pokemon cards is popular at your school. There’s a bulletin board in the cafeteria where people pin up sheets of paper with trade offers — “Buying 3x Bulbasaur, $0.75 – Lenny”. “Selling 1x Pikachu, $2.15 – Mary”, and so on.
You might notice a couple curious things about the bulletin board:
– You *never* see two “overlapping” offers. Like “Selling 5x Butterfree for $2.05 – Alice”, “Buying 3x Butterfree for $2.10 – Bob”. This is because there was no need for Bob to post his offer, he could have just taken three of Alice’s offered Butterfrees for $2.05.
After a while, one of the kids is experimenting with programming and makes a computerized version of the bulletin board. The computerized version matches people like Alice and Bob with overlapping prices. It also lets users place “don’t care” buy and sell orders, for example:
– When someone just got their allowance and wants to buy a particular card immediately and don’t care too much about the price (market “buy” order), they scan the board for the lowest offer and take that one.
– When someone doesn’t have lunch money and wants to sell a particular card immediately so they can eat and don’t care too much about the price (market “sell” order), they scan the board for the highest offer and take that one.
For each card, whenever a successful “match” of buyer and seller occurs, the computerized system posts online to report the price. People who care about your school’s Pokemon trading card scene can check those posts through websites or apps. That’s what you see on apps, websites, financial news shows, etc.
> if a company increases profits its value in the stocks will increase, but what is recording the incomes of the company?
In the US, a company whose shares are traded on the stock market is legally required to report its financial information to the government in an annual report (Form 10-K) and quarterly reports (Form 10-Q). Anyone can download these reports from a government website ( [EDGAR](https://en.wikipedia.org/wiki/EDGAR) ). You can usually also get these reports through your stock trading website, and from the “investor relations” section of the company’s website. The annual reports are checked (audited) which means that (hopefully) the reports will be pretty accurate, and nobody will lie about the company’s financial conditions. (In 2002 the US made [major reforms](https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act) to its financial reporting laws in response to the sudden collapse of two big companies (Enron and Worldcom). It turned out those companies filed financial reports full of lies that showed they were healthy and growing, and the big accounting company that was supposed to check the reports (Arthur Andersen) found some of the lies but didn’t raise the alarm. That accounting company also itself later collapsed because after that, no one trusted them to do their job and check things properly.)
A lot of stock traders read these reports and accordingly adjust their prices and buying / selling strategy.
> Is it connected to a similar system that the bank uses to store money?
A company can open bank accounts and own financial assets like stocks and bonds. These will all be in a company’s annual and quarterly reports. In the computer era, some companies certainly have daily or real-time reports of their assets and balances (especially in the financial industry) but these are usually only for the company’s internal use.
One thing that I should mention is that unlike Pokemon cards, many companies pay a portion of their profits as *dividends* to shareholders. How much are you willing to pay right now to get $100 a year, forever? $300? $500? $1000? $5000? Or flip the question; if you’re currently getting $100 a year, forever, how much would someone have to pay you right now to give that up? $300? $500? $1000? $5000? Everyone has their own personal answer to these questions, and posts offers accordingly to the stock market (which works basically like the computerized bulletin board). Then overlapping offers are matched until no more trading occurs.
Except the “forever” part isn’t guaranteed, a company’s dividends may go up (or down) as its profit increases (or decreases). For “mature” companies, the dividend is what links the price to company performance. So figuring out “What offers / trades should I make?” depends not just on “Do I prefer money now or an income stream over a long time?” but also on “How much, how fast, and how likely do I think it is that the company will grow / shrink?” Every trader has their own answer to these questions, and the stock market is a means for them to come to a consensus.
For “immature” companies that don’t pay dividends, usually the price is based on a guess about how much dividends the company will be able to afford to pay when it becomes “mature”, and/or what a larger company might be willing to pay to buy the company.
You have an incorrect premise.
> You can check the value of stocks share online
This is false, what you are seeing is not the value of a stock, what you are seeing is the recent transaction data.
If I own a baseball card, and the baseball player dies suddenly. My card might go up in value, or might not. No one really knows until a buyer and a seller agree on a price. If that price happens to be a public auction, then everyone will know that price and the “value” of everyone’s baseball cards will change.
The stock markets work much the same, but there’s millions of buys and sells happening all day long. And the stock exchange itself publishes the prices of these buys and sells.
A buyer can offer less than the list price for a stock, and someone might be willing to sell to them, and if they are then the list price of the stock will fall.
A buyer can offer more than list price, it would likely be easy to find a buyer at more than list price, and once that transaction completes the list price of the stock goes up.
It’s really important to understand that these prices are actual buy and sell prices negotiates between real buyers and sellers. It’s not a “price tag” that gets set by some third party or even the seller themselves.
What we call the stock price, is actually a historic reflection of actual transactions that have already occured. It’s all happening very fast, so it seems like “real time” prices, but it’s not. It’s just a historic transaction record.
You don’t know it in real time unless you’re actually present at the stock exchange.
The prices reported on TV and internet have something like a 15 minute delay. The disclaimers for this used to be more prominent, but even when they are absent, the delay is still there.
Stock price isn’t actually based on what the company’s true value is. It is based on the market; what people are willing to buy share for. So many companies end up having stock values way above the actual value if you were to auction off all the company’s possessions (Apple and Tesla, to name two classic examples). Other companies end up having stock values lower than their true value, simply because people aren’t interested in investing.
So the stock price listings just show the price that people are currently paying when buying that stock. In modern times, stock trades are done electronically so the value can determined and updated near instantly online by simply watching the electronic transactions. In the olden days when stocks were traded by hand, stock price listings were much slower. Reporters would monitor and write down stock prices from transactions as they heard or saw them occur, or would wait until closing time and see what the last transaction price was. Most people got stock prices in the financial pages of the newspaper, while those with lots of money and interest could pay to have a special telegraph line which provided stock prices (called a stock ticker). These tickers output prices on a long narrow ribbon of paper tape, and they generated lots and lots of paper tape each day. During parades in big cities, people would throw old stock ticker tape out the windows as confetti, hence the term “ticker tape parade”.
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