Eli5: How is the exact price of a stock calculated?


I get what causes a stock’s value to rise and fall in general but I don’t get where the exact numerical price of the stock comes from

In: 11

The “price” of the stock, what you see it valued at currently, is from the last executed order between a seller and a buyer of that stock. So if I put an order to sell a stock at $100.01 and you buy it at $100.01 then the new stock price is $100.01 until the next order executes.

Pretty much as simple as the other dude said. When many people sell a stock there is little demand and it’s price goes down. When many people want a stock the price goes up.

It’s literally buyers and sellers by the hundreds/thousands negotiating in real-time. There are some buyers/sellers willing to buy at whatever the market it, others who only want to sell at certain prices. If more orders come in than there are orders to sell, then the prices offered goes up until more sellers are willing to sell shares, whether that’s 1 penny more or $10 more.

So XYZ is selling at $50. You want to buy 100 shares at market price. Nobody wants to sell now at $50. So your bid goes up to $50.01. Then $50.02. Somebody sells 20 shares to you. At $50.05 another 50 shares sell. Finally at $50.07 you get your last 30 shares. New price is $50.07.

The big investment banks hire skilled analytics who will look at countless different factors to determine how much the company is going to make and therefore the potential return on investment. This is compared to the expected overall growth in the economy to get an estimate for how much the company is worth. From this valuation the investment bank is going to issue offers to buy stock at a lower price and sell at a higher price then what they think the stock is worth. The valuation changes all the time so they update their prices accordingly. What they are hoping for is that someone comes up with a wrong value for the company and that they will be able to make a good trade. When this happens the price at which they agreed upon is published for everyone to see and will update the stock tickers. This is then again used as a factor for the valuation of the company.

Generally you don’t buy/sell stock from people. You buy/sell stock from organisations known as “market makers”. Market makers set the price they’re willing to buy and sell stock at.

The “buy” price you see is the lowest price that a market maker will sell that much stock to you for. The “sell” price is the highest price that a market maker will buy that much stock from you for.

If people are trying to sell stock to the makers, the makers drops the prices. If people are buying stock from the makers, they increase the price.