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Stocks are fractional ownership claims on a company. An owner of 100 shares of IBM owns 100/1,580,000,000th of the company. That owner can vote at annual and special meetings of shareholders. That owner is entitled to proportionate receipt of dividends. That owner is entitled to his/her proportionate interest in the event IBM would decide to disolve itself.

The market price moves with supply and demand changes. When you place an order for an exchange traded stock (stocks trading on an organized exchange, but not the NASDAQ) you are sending an order to buy or sell shares in a company. Broadly speaking there are two category of orders (other categories relate to triggers to trades or special instructions on filling the order) they are market orders and limit orders.

When you enter a market order to buy, you tell your broker to send someone to the floor of the exchange and to continue bidding until you are the high bidder and get the shares. There is no limit to what you will pay. As a practical matter, it is usually near the last price. A limit order instructs your broker to go to the floor and bid any amount up to your limit. If the highest bid is above your price, your order will not fill. Some limit orders are allowed to remain at the floor auction for up to a month (a good til cancelled order).

If you own shares, say of IBM, and you put in a market sell order, you are instructing your broker to send someone to the floor of the exchange and accept any price to get your shares sold and to continue to bid down your shares until someone buys thems. Like the above limit order, if you place a limit then you are informing the broker that you want to sell, but will not accept below a certain price.

The NASDAQ works a little differently. They were originally stores (just like JCPenney). You came in and they sold stocks to you over the counter, or bought stocks from you over the counter. Stocks traded on the NASDAQ do not match buyers with sellers. When you buy a stock on the NASDAQ, the computer looks at the prices each different broker (called a market maker) and gets you the best price. The same is true when you sell. The market maker takes the stocks into inventory or sells them from their inventory. It really does work much like a store, although highly traded stocks have such high volume that the market makers are really matching orders like the exchanges do. The only difference is that market makers on the NASDAQ are required to accept ALL market orders at the last stated price. The exchange only have to accept matching orders, although market makers do exist on the exchanges (called specialists).

There is one other issue not mentioned, cash accounts versus margin accounts. In cash accounts, you own your shares but in order to make a purchase or sell you have to have sufficient cash in your account to buy and sufficient shares in your account to sell. There can be time delays since it can take three days for orders to clear from one owner to the other. Conceptually, it is just like check clearing, it can take time.

The other account is a margin account. In a margin account, you can borrow money to purchase shares beyond the money you have available, up to a limit. This adds risk because you are buying more than you can immediately pay for. As an example, if you had $81,630 you could buy 1000 shares of IBM in a cash account or 2000 shares in a margin account. If IBM's price went to $100 per share you would own $200,000 worth of stock and owe $81,630 plus interest. You could sell, get approximately $120,000 on your $81,630 investment instead of $100,000 on your initial investment. The reverse is true as well. If the price fell to $60, you would have $120,000 but still owe $81,630. Instead of having $60,000 for a loss of approximately $20,000, you would have slightly less than $40,000.

Now that is one side of margin. The other side allows you to sell things you do not own. It is called short selling. You could sell 1000 shares of IBM for $81,630. You would receive the cash and owe 1000 shares of IBM to the broker at some future point. If the price of IBM went to 100 then it would cost you approximately an additional $20,000 to buy back the shares and pay off your loan. Of course if the price went to 60, then you could use $60,000 of the cash they gave you and use it to buy back the 1000 shares and repay the loan.

2006-06-17 15:27:27 · answer #1 · answered by OPM 7 · 1 0

The current (sellers) and future (buyers) shareholders control the share price. The price is determined by an agreement of what price someone is willing to pay to buy a certain stock vs. the price someone is willing to sell their shares for. If the company in questions reports better than expect earnings, the shares will likely raise because of heighten demand, and if the report is "less than rosey", the share price is likely to drop due to a lower outlook . The price of shares are also moved by the over-all market conditions as well. If the Federal Reserve changes monetary policies or reports about increasing or decreasing inflation, the market will either sell-off or take-off.

2006-06-17 15:39:15 · answer #2 · answered by Anonymous · 0 0

It's supply and demand, pure and simple. If more people want a particular stock than are willing to sell, they have to pay a higher price. And if more people want to sell a particular stock than there are buyers, it goes down. Mostly the big hedge funds and mutuals funds control the markets because they buy and sell millions of shares of a particular stock every day. But with some study and experience you can get into the action too!

2006-06-17 15:10:48 · answer #3 · answered by Ray S 2 · 0 0

It's all about supply and demand. If many people want to buy the stock, that will drive the market price up. If people want to sell the stock (increasing the supply of available shares), that will lower the price. If a company has bad news, people would want to cash in on their profits and sell the stock, which is why prices drop when there is bad economic news.

2006-06-17 15:10:36 · answer #4 · answered by Rich B 3 · 0 0

The stock market is always in perfect balance. As a market maker, I set the stock price to be balanced between buyers and sellers and keep my book even. If I start getting more people wanting to buy the stock, and no one is selling, then I raise the price a little at a time. Eventually, someone will realize the stock is climbing, and sell to take their profits. Then the opposite happens when more people want to sell. It's all about balance.

2006-06-17 15:14:56 · answer #5 · answered by ThaneTheBrain 2 · 0 0

We all control stock prices by the products we buy.The companies get us to buy by have a great marketing source.Then big business comes in and buys a company or runs them out of business making that certain stock go up or down

2006-06-17 15:09:17 · answer #6 · answered by vicki g 1 · 0 0

On one side are the investors wanting to buy the stock(demand)
while on the other side are those willing to sell(supply.

Given a temperrary fixed supply of the stock, when
the supply ewquals the demand the market is in
equilibrium and therefore the market is determined..

2006-06-17 15:18:16 · answer #7 · answered by joesudia 1 · 0 0

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2016-02-16 09:34:12 · answer #8 · answered by ? 3 · 0 0

Ours is an auction system and the prices are controlled by supply and demand of the limited shares offered. Benjamin Grahm books will help you understand.
www.bondknowledge.com/book_review_intell.html

2006-06-17 15:10:28 · answer #9 · answered by Anonymous · 0 0

Supply and Demand

2006-06-17 15:05:24 · answer #10 · answered by Anonymous · 0 0

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