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From what I understand, the stock price is based on supply and demand. For example, if a stock that was priced at $0.01 was bought buy an investor who spent $5.00 (leaving him with 100 shares), it would drive the price of the stock up.

But I am wondering, who (or what) determines how much the price of the stock will go up, or down?

How do prices change? Is it a program that updates the price of every stock, every second, based on some formula? Or is it some speculating "geek" that hides in some wall street office, updating the prices on every stock he sees based on the market volume?

Thank you for any help. All help is greatly appreciated.

Kelsey
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    Did you search for similar questions here? This has come up before. – Chris W. Rea Mar 29 '15 at 23:50
  • Duplicate of "how is stock price determined" among others. It's always a good idea to try a search before asking a question, to see if the answer has already been posted. – keshlam Mar 30 '15 at 01:07
  • I have searched, but not found an answer like Matt's. Sorry if it appears to be a duplicate. – Kelsey Mar 30 '15 at 03:04

1 Answers1

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The market price of a stock is based on nothing at all more than what two parties were last willing to transact for it.

The stock has a "bid" and an "ask" each is the value placed by a counterparty. For the sale to occur, one party must meet the other. The stock transacts and that is the price.

For a stock to "go up" people must be willing to pay more for it. Likewise, for it to "go down" people must be willing to accept less for it.

Matthew
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  • Thank you, Matt. Let's say a stock was at $0.01 and someone put a buy option, but only for $0.10 (he will only buy it for 10 cents). And someone put a sell option for $0.10. Would they exchange the stock for $0.10? And would this raise the price of the stock to $0.10? – Kelsey Mar 30 '15 at 02:41
  • Let's use dollars instead. If the last time the stock sold was for $1, its price would be $1. If there were absolutely no asks and no bids in (or an ask above $10), and somebody put in a bid for $10, and somebody else accepted that offer, then the price would become $10. This is very unlikely in trades stocks but could certainly happen in obscure options. – Matthew Mar 30 '15 at 02:47
  • Thank you Matthew, you are a great teacher. If somebody asked for $100.00, and I bought the stock when it was priced at $1.00, would I be paying $100.00 (or whatever price they asked)? – Kelsey Mar 30 '15 at 03:02
  • You will pay whatever price you bid. I don't understand your last question. If you want to sell the stock you place an "ask." If you want to buy the stock you place a "bid." The transaction can only occur if another party accepts your bid or your ask... at that point the stock's price is equal to that value. – Matthew Mar 30 '15 at 03:15