28/01/2023
Basics of share market for beginners | How is the stock price determined?
How is the stock price determined? In this video, we'll explain how the stock price is calculated in simple terms and take you through the logic behind how everything works. This is perfect for stock market beginners who want to learn investing. People will tell you that the stock price is determined by market supply and demand, but that's really vague. For example, what's guiding how much people supply and demand for a particular stock? The truth is, it really comes down to the intrinsic value.
Let's establish what the stock price is. The headline stock price we see quoted in the stock market is the price at which the latest stock transaction occurred. It's not the price at which you can buy the stock but the price at which the last trade happened.
Buyers of a stock determine how much they're willing to pay for a stock by calculating the intrinsic value of the stock. Likewise, sellers will do a similar exercise to determine the price at which they would sell. And when both the buyer and seller agree to a price, they make a trade and the stock price changes to reflect this latest price.
Therefore, intrinsic value is the guiding force of the stock price.
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