lets say a company called xyz recently got listed on the nasdaq exchange and priced at 10$ if I execute a buy order, who is exactly selling their shares? Just ordinary people like you and me? why would one buy shares priced at 10 and sell them to me for the same price? I just don’t get it…? does IPO’s play a key role here?
Bonus question:
I often see recently listed stocks going straight down, take $BREA for example. how is this possible? why would anyone buy their shares and imminently sell for a cheaper price?
In: 3
Shares are created when a corporation sells shares that don’t exist, and they’re destroyed when a corporation buys its own shares. These are called “issuing” and “buyback.”
Issuing means that a corporation raises funds by creating stock for free and selling it. This kind of sounds like nonsense, but it only happens when two groups of people agree that it makes sense to expand the business.
– The current owners have to agree how many shares to issue and want a higher price. Bringing more shares into existence means the fraction they own will have to shrink, so they want a fair amount of money to be added to the business in exchange.
– New owners have to agree that the shares are worth real money. Naturally they want to buy at a lower price.
There’s often an intermediate step: the new shares are sold to a broker in one big block and the broker plans to break them up and sell them to long-term investors relatively quickly.
There are legal requirements too. In particular: you can’t pretend that issuing new shares is actual profit from a real business – that’s a kind of Ponzi scheme.
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