calculation of stock price

This is a discussion on calculation of stock price within the Stocks forums, part of the Markets category; Hi, I am new to these forums and to the stock market in general. But I am curious to how ...

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Old Aug 26, 2016, 1:02am   #1
 
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calculation of stock price

Hi, I am new to these forums and to the stock market in general.

But I am curious to how exactly a stock price is determined by the exchange on a secondary market. I tried looking around a bit on the forum and on google, but couldn't come up with a conclusive answer.

What I've been able to gather so far is that the price is determined by the maximum amount of shares that have been sold for a particular asking price.

So let's say the previous price of a share was 10$ and now there have been 10 sellers asking 11$ per share and 10 sellers asking 12$ per share. There were 10 buyers for the 11$ per share and only 3 buyers for the 12$ per share, therefor the share price has increased to 11$.

But if that's the case, then that must be over a specific pre-determined time frame? Also, the following scenario seems odd:

there are 20 shares sold for 12$ and 19 shares sold for 25$, this wouldn't have an effect if the only thing that matters is the maximum number of shares sold for a particular price.

Also, do different exchanges have different ways of calculating price?

My apologies if there is somewhere a sticky on this or if it is a commonly asked question. Thanks in advance for any help.
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Old Aug 26, 2016, 1:48am   #2
 
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If I've understood the question...

It's an auction, like Ebay.

The exchange plays the role of EBay. It does not itself set the price.

It's the sellers and buyers who decide their prices.

Trading 'at the market' means buying or selling at the best available price.

(And some other details)

PS, I have 100 new, latest model iPads available. How many do you want to buy and how much for? How about 400 GBP per unit?
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Old Aug 26, 2016, 1:47pm   #3
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As noted above, the exchange does not determine prices. It merely reports them. What exactly they report depends on the price feed you're looking at. There's a transactional feed which reports the last traded price. There is also the current market rate, which is the active highest bid and lowest asking price for orders on the books.
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Old Aug 27, 2016, 6:13pm   #4
 
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djinnotonic started this thread yes of course it just reports them, what I want to know is how the displayed prices are determined.

If it's the price of latest accepted order, or the biggest number of shares per price over a pre-determined timeslot, etc
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Old Aug 29, 2016, 7:29pm   #5
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Quote:
Originally Posted by djinnotonic View Post
yes of course it just reports them, what I want to know is how the displayed prices are determined.

If it's the price of latest accepted order, or the biggest number of shares per price over a pre-determined timeslot, etc
As I said above, if you're looking at the transactional feed the LAST value is the most recently completed transaction. If you're looking at the live bid/ask feed it is the current lowest ask price and the current high bid price. In neither case does order size (number of shares) have anything to do with what is shown. Obviously, in the case of the transaction feed, you're talking the most recent timestamp. For the bid/ask rates, though, order date/time isn't a factor. Those orders could have come in just 10 seconds ago or been on the books for days.
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Old Aug 30, 2016, 3:25am   #6
 
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djinnotonic started this thread
Quote:
Originally Posted by Rhody Trader View Post
As I said above, if you're looking at the transactional feed the LAST value is the most recently completed transaction. If you're looking at the live bid/ask feed it is the current lowest ask price and the current high bid price. In neither case does order size (number of shares) have anything to do with what is shown. Obviously, in the case of the transaction feed, you're talking the most recent timestamp. For the bid/ask rates, though, order date/time isn't a factor. Those orders could have come in just 10 seconds ago or been on the books for days.
Ah ok misunderstood your post. Thanks for the help
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Old Sep 16, 2016, 5:04pm   #7
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Calculating Stock Prices

investors buy stocks for both the dividends they pay today, as well as the possibility of a gain when selling the stock in the future, the expected return can be expressed by the following calculation:

Expected Return = (Dividends Paid + Capital Gain) / Price of Stock

Additional Resources
Stock Research Part I
Capital Asset Pricing Model
Arbitrage Pricing Theory
Stock Beta and Volatility
Reading a Value Line Report
Understanding Price Momentum
This expected return for a stock is also known as the market capitalization rate or discount rate. We're going to use all three terms interchangeably throughout our calculations and explanations in this article. Let's look at a quick example of how this formula works.

Listed below are the starting assumptions:

Price of Stock A is currently $100.00 per share or (P0).
Dividends are expected to be $3.00 per share (Div).
The price of Stock A is expected to be $105.00 per share in one year's time (P1). Therefore, our capital gain is expected to be $105.00 - $100.00 or $5.00 per share.
In this example:

Expected Return, or R = ($3.00 + $5.00) / $100.00 = 8.0%

We can now use this expected return to calculate the price of a stock in the same risk class as Stock A using the following formula:

Stock Price = (Dividends Paid (Div) + Expected Price (P1)) / (1 + Expected Return (R))

Proving this calculation with our example information above, we have:

Stock Price = ($3.00 + $105) / (1 + 0.08) = $108.00 / 1.08 = $100

Some individuals may recognize this stock price calculation as the beginnings of a discounted cash flow formula. Essentially, the price of a stock is the cash flows gained by the stockholder, divided by the discount rate or market capitalization rate.
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Old Sep 19, 2016, 8:31am   #8
 
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There are various ways like dividend method, bond price calculation method using which a trader can evaluate price of a stock.
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Old Sep 19, 2016, 8:43am   #9
 
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Quote:
Originally Posted by djinnotonic View Post
Hi, I am new to these forums and to the stock market in general.

But I am curious to how exactly a stock price is determined by the exchange on a secondary market. I tried looking around a bit on the forum and on google, but couldn't come up with a conclusive answer.

What I've been able to gather so far is that the price is determined by the maximum amount of shares that have been sold for a particular asking price.

So let's say the previous price of a share was 10$ and now there have been 10 sellers asking 11$ per share and 10 sellers asking 12$ per share. There were 10 buyers for the 11$ per share and only 3 buyers for the 12$ per share, therefor the share price has increased to 11$.

But if that's the case, then that must be over a specific pre-determined time frame? Also, the following scenario seems odd:

there are 20 shares sold for 12$ and 19 shares sold for 25$, this wouldn't have an effect if the only thing that matters is the maximum number of shares sold for a particular price.

Also, do different exchanges have different ways of calculating price?

My apologies if there is somewhere a sticky on this or if it is a commonly asked question. Thanks in advance for any help.

what broke do you use to trade stocks?

i notice you are from the UK.. i am having trouble finding a broker to trade stocks.
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Old Sep 23, 2016, 12:47pm   #10
 
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To find the value of a stock, you need to calculate all of these future earnings (out to infinity!), and then use your own desired rate of return as a discount rate to find their present value. The infinite sum of these present values is the fair market value of the stock; or more accurately, it's the maximum price you should be willing to pay.
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Old Sep 23, 2016, 5:07pm   #11
 
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Actually, to find the value of a stock, all you have to do is find the last price on which the last buyer and seller agreed when they completed their transaction.

Valuing a stock and valuing a company are entirely different processes.
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