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Spacecadet
15th January 2009, 22:10
Puzzling over this one:

What mechanism sets the price of shares as shown on the share price sites?
I'm not refering to supply and demand, what I am stuck on is how the change in demand is then translated to a change in the listed price.

Is it simply the price of the last sale?
Is it based on the average asking price being set by sellers?
If there are no purchases does the price drop till someone does buy?

Cyberman
15th January 2009, 22:20
Go to a site such as www.iii.co.uk and they will have all of this sort of information on the site. Most sites display SPs with approx 15 minutes delay, but some give live prices. :smokin

PM-Junkie
15th January 2009, 22:45
Puzzling over this one:

What mechanism sets the price of shares as shown on the share price sites?
I'm not refering to supply and demand, what I am stuck on is how the change in demand is then translated to a change in the listed price.

Is it simply the price of the last sale?
Is it based on the average asking price being set by sellers?
If there are no purchases does the price drop till someone does buy?

Wow - what a question. You have no idea how big a subject that is!!

Is it simply the price of the last sale? Absolutely not. The price of a share can drop like a stone for no apparent reason, or suddenly go up for no apparent reason. The trick is to be on the ball to know when that is likely to happen. Eg if someone suddenly dumps 20% of the stock of a company, it's shareprice will plummet.

Is it based on the average asking price being set by sellers? It can be. But more often than not it is set by the markets and the value that the markets assign to that share. There's hundreds if not thousands of factors involved.

If there are no purchases does the price drop till someone does buy? Nope. If the markets judge a stock to be worth X, just because nobody buys it doesn't mean it will change. Again...lots and lots of factors involved.

I could bore the pants off you, but I'll resist the urge. Suffice to say it is far more complicated than just a supply and demand thing ;)

Spacecadet
15th January 2009, 22:53
I'll rephrase, what technical mechanism results in a price of X being displayed as the "share price"

Take the LSE for example - hundreds/thousands of transactions going through every minute, a company is listed at 117p one moment, then drops to 115p.
How does the LSE system decide to display 115p instead of 116 or 114?

bored
15th January 2009, 22:57
Shares are bought/sold using an auction-like system, it's hard to explain it in 1 paragraph but check out this for a more detailed explanation:

http://www.sec.gov/investor/pubs/tradexec.htm

bored
15th January 2009, 23:01
Also check out

http://en.wikipedia.org/wiki/Order_(exchange)
http://www.sec.gov/answers/orderbd.htm

bored
15th January 2009, 23:07
Hmm, just checked these links and they don't seem to answer your question directly. So,

The buy price is the price of the best (=lowest) limit order to sell.
The sell price is the price of the best (=highest) limit order to buy.

Spacecadet
15th January 2009, 23:08
Also check out

http://en.wikipedia.org/wiki/Order_(exchange)
http://www.sec.gov/answers/orderbd.htm

A link to the stock market on wikipedia had the answer

Actual trades are based on an auction market paradigm where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any ask price or bid price for the stock, respectively.) When the bid and ask prices match, a sale takes place on a first come first served basis if there are multiple bidders or askers at a given price.

The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery.

bored
15th January 2009, 23:12
That's correct. However the actual price you get when buying or selling will also depend on other factors, depending on the type of order, how the broker executes it, etc.

Spacecadet
15th January 2009, 23:15
That's correct. However the actual price you get when buying or selling will also depend on other factors, depending on the type of order, how the broker executes it, etc.

I saw those in your links thanks

However, I was just curious as to how the displayed price is derived.