How is the share price Determined?

A share price is determined by supply and demand. It will rise if there is high demand. If it is low, it will fall. Stock prices are determined by the ask and bid for the stock. A bid is an offer for the purchase of a specified number of shares at a particular price. An ask is an offer for a specified number of shares to be sold at a specific price.

Stock exchanges instantly calculate the stock's value by finding the maximum amount of shares being traded at any given moment. If there is an increase or decrease in the sell or buy offer, the price will change.

How do you calculate the market price for a share?

You need to determine the current market price for a share in order to calculate its market cap. Take the most recent value of the company share, multiply it by the outstanding shares to determine how valuable they are for traders.

The price to earnings ratio is another method of calculating the share price. The P/E Ratio can be calculated by taking the stock price and its earnings over the past 12 months.

The intrinsic value of stock = Earnings per share x P/E ratio

Established businesses tend to have slower growth rates while growing companies have a higher ratio of P/E.

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What is the initial value for shares?

The company shares are first issued in the primary market. This is called the Initial Public Offer (IPO). It allows the public to raise capital. Based on the performance of the company and its net present value, the initial price of the share will be determined at IPO.

The share price will start to fluctuate once trading begins. This is due to the demand and supply in the secondary markets. If there are more buyers, the prices could rise and fall depending on how many sellers there are.

What factors directly affect share prices?

1. The most important factors that directly affect share prices are supply and demand. The price of a share will rise if it is purchased more than it is being sold. This is because the stake is valued more than the supply.

2. Share prices can be affected by a company's earnings or profitability when it produces and sells goods and services.

3. The price of stocks can be affected by the behaviour of investors and traders in the market.

4. If demand and supply are equal, share prices will remain stable and there will be very little price change. An abrupt change is possible if one factor outweighs another.

5. The supply of new shares issued by companies to be purchased in the market is limited. The shares will rise if there are many investors trying to purchase these shares and the supply is limited.

6. A company that buys back shares from the market reduces the amount of shares available. The reduced supply can cause prices to rise.

What factors indirectly affect share prices?

1. Interest rates

2. Economic policies are changing

3. Inflation

4. Deflation

5. Sentiment of the market

6. Trades in the industry

7. Global fluctuations

8. Natural disasters

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