What determines deal price on stock exchange? [duplicate]
"Stock prices are set by bidding. In principle, a seller will say, ""I want $80."" If he can't find anyone willing to buy at that price, he'll either decide not to sell after all, or he'll lower his price. Likewise, a buyer will say, ""I'll pay $70."" If he can't find anyone willing to pay that price, he'll either decide not to buy or he'll increase his price. For most stocks there are many buyers and many sellers all the time, so there's a constant interplay. The typical small investor has VERY little control of the price. You say, ""I want to buy 10 shares of XYZ Corporation and my maximum price is $20."" If the current trending price is below $20, your broker will buy it for you. If not, he won't. You normally have some time limit on the order, so if the price falls within your range within that time period, your broker will buy. That is, your choice is basically to buy or not buy, or sell or not sell, at the current price. You have little opportunity to really negotiate a better price. If you have a significant percentage of a company's total stock, different story. In real life, most stocks are being traded constantly, so buyers and sellers both have a pretty good idea of the current price. If the last sale was ten minutes ago for $20, it's unlikely anyone's going to now bid $100. They're going to bid $20.50 or $19.25 or some such. If the last sale was for $20 and your broker really came to the floor and offered to buy for $100, I suppose someone would sell to him very quickly before he realized what an outrageous price this was. I use TD Ameritrade, and on their web site, if I give a price limit on a buy that's more than a small percentage above the last sale, they reject it as an error. I forget the exact number but they won't even accept a bid of $80 if the stock is going for $40. They might accept $41 or $42, something like that." "Price is decided by what shares are offered at what prices and who blinks first.  The buyer and seller are both trying to find the best offer, for their definition of best, within the constraints then have set on their bid or ask. The seller will sell to the highest bid they can get that they consider acceptable. The buyer will buy from the lowest offer they can get that they consider acceptable. The price -- and whether a sale/purchase happens at all -- depends on what other trades are still available and how long you're willing to wait for one you're happy with, and may be different on one share than another ""at the same time"" if the purchase couldn't be completed with the single best offer and had to buy from multiple offers. This may have been easier to understand in the days of open outcry pit trading, when you could see just how chaotic the process is... but it all boils down to a high-speed version of seeking the best deal in an old-fashioned marketplace where no prices are fixed and every sale requires (or at least offers the opportunity for) negotiation. ""Fred sells it five cents cheaper!"" ""Then why aren't you buying from him?"" ""He's out of stock."" ""Well, when I don't have any, my price is ten cents cheaper."" ""Maybe I won't buy today, or I'll buy elsewhere. ""Maybe I won't sell today. Or maybe someone else will pay my price. Sam looks interested..."" ""Ok, ok. I can offer two cents more."" ""Three. Sam looks really interested."" ""Two and a half, and throw in an apple for Susie."" ""Done."" And the next buyer or seller starts the whole process over again. Open outcry really is just a way of trying to shop around very, very, very fast, and electronic reconciliation speeds it up even more, but it's conceptually the same process -- either seller gets what they're asking, or they adjust and/or the buyer adjusts until they meet, or everyone agrees that there's no agreement and goes home."
This is a tough question SFun28.  Let's try and debug the metric. First, let's expand upon the notion share price is determined in an efficient market where prospective buyers and sellers have access to info on an enterprises' cash balance and they may weigh that into their decision making.  Therefore, a desirable/undesirable cash balance may raise or lower the share price, to what extent, we do not know.   We must ask How significant is cash/debt balance in determining the market price of a stock?   As you noted, we have limited info, which may decrease the weight of these account balances in our decision process. Using a materiality level of 5% of net income of operations, cash/debt may be immaterial or not considered by an investor. investors oftentimes interpret the same information differently (e.g. Microsoft's large cash balance may show they no longer have innovative ideas worth investing in, or they are well positioned to acquire innovative companies, or weather a contraction in the sector) My guess is a math mind would ignore the affect of account balances on the equity portion of the enterprise value calculation because it may not be a factor, or because the affect is subjective. There isn't a formula like that, there is only the greed of other market participants, and you can try to predict how greedy those participants will be. If someone decided to place a sell order of 100,000 shares at $5, then you can buy an additional 100,000 shares at $5. In reality, people can infer that they might be the only ones trying to sell 100,000 shares right then, and raise the price so that they make more money. They will raise their sell order to $5.01, $5.02 or as high as they want, until people stop trying to buy their shares. It is just a non-stop auction, just like on ebay. The IPO price is set between the underwriters and the specialist in the NASDAQ. There are a lot of complexities on how to get to this price, everyone is trying to pull to their own side. In the Facebook example, the price was $38 for all IPO participants. Then, once the IPO went to the secondary market, the bid/ask drove the pricing.  At the secondary market the price is driven by the demand and offer of the stock.  That is, people who wanted to buy right after the IPO likely drove the initial price up. That price is the post-tender price, which already reflects arbitrage.  It's less than $65 on the market because that's the highest offer out there and the market price reflects the risk that the $65 will not be paid.  It also reflects the time value of money until the cash is disbursed (including blows to liquidity). In other words, you are buying the stock burdened with the risk that it might rapidly deflate if the deal falls through (or gets revived at a lower price) or that your money might be better spent somewhere other than waiting for the i-bank to release the tender offer amount to you. Two months ago JOSB traded around $55, and four months ago it traded around $50.  If the deal fails, then you could be stuck either taking a big loss to get out of the stock or waiting months (or longer) in the hope that another deal will come along and pay $65 (which may leave you with NPV loss from today).  The market seems to think that risk is pretty small, but it's still there. If the payout is $65, then you get a discount for time value and a discount for failed-merger risk.  That means the price is less than $65.  You can still make money on it, if the merger goes through.  Some investors believe they have a better way to make money, and no doubt the tender offer of the incipient merger of two publicly traded companies is already heavily arbitraged.  But that said, it may still pay off. Tender offer arbitrage is discussed in this article. This is called the Ask-Bid Spread. The difference varies based on the liquidly of the asset. The more liquid or the higher the volume of trades for the asset then the smaller the spread is. The spread goes to the broker to pay for some of the cost of the trade. My guess is that when there is a higher volume of shares being traded, brokers need to take less of a fee per share out of the transaction to cover their costs. This makes the spread is smaller.  This is essentially the difference in   price between the highest price that a   buyer is willing to pay for an asset   and the lowest price for which a   seller is willing to sell it. The seller will get the bid price and the buyer will pay the ask and the broker keeps the spread. From http://www.investopedia.com/terms/b/bid-askspread.asp "In the US, stocks are listed on one exchange but can be traded on multiple venues.  You need to confirm exactly what your data is showing: a) trades on the primary-listed exchange; or b) trades made at any venue. Also, the trade condition codes are important.  Only certain trade condition codes contribute towards the day's open/high/low/close and some others only contribute towards the volume data.  The Consolidated Tape Association is very clear on which trades should contribute towards each value - but some vendors have their own interpretation (or just simply an erroneous interpretation of the specifications). It may surprise you to find that the majority of trading volume for many stocks is not on their primary-listed exchange.  For example, on 2 Mar 2015, NASDAQ:AAPL traded a total volume across all venues was 48096663 shares but trading on NASDAQ itself was 12050277 shares. Trades can be cancelled.  Some data vendors do not modify their data to reflect these busted trades.   Some data vendors also ""snapshot"" their feed at a particular point in time of the data.  Some exchanges can provide data (mainly corrections) 4-5 hours after the closing bell.  By snapshotting the data too early and throwing away any subsequent data is a typical cause of data discrepancies.   Some data vendors also round prices/volumes - but stocks don't just trade to two decimal places. So you may well be comparing two different sets of trades (with their own specific inclusion rules) against the same stock.  You need to confirm with your data sources exactly how they do things. Disclosure: Premium Data is an end-of-day daily data vendor." When stocks have a change in price it is because of a TRADE. To have a trade you have to have both a buyer and a seller.  When the price of a security is going up there are an equal amount of shares being sold as being bought. When the price of a security is going down there are an equal amount of shares being bought as being sold.  There almost always is an unequal amount of shares waiting to be sold compared to the amount waiting to be bought. But waiting shares do not move the price, only when the purchase price and the sale price agree, and a trade occurs, does the price move.  So the price does not go down because more shares are being sold. Neither does the price go up because more shares are being bought. The literal answer to your question 'what determines the price of an ETF' is 'the market'; it is whatever price a buyer is willing to pay and a seller is willing to accept. But if the market price of an ETF share deviates significantly from its NAV, the per-share market value of the securities in its portfolio, then an Authorized Participant can make an arbitrage profit by a transaction (creation or redemption) that pushes the market price toward NAV. Thus as long as the markets are operating and the APs don't vanish in a puff of smoke we can expect price will track NAV. That reduces your question to: why does NAV = market value of the holdings underlying a bond ETF share decrease when the market interest rate rises?  Let's consider an example. I'll use US Treasuries because they have very active markets, are treated as risk-free (although that can be debated), and excluding special cases like TIPS and strips are almost perfectly fungible. And I use round numbers for convenience. Let's assume the current market interest rate is 2% and 'Spindoctor 10-year Treasury Fund' opens for business with $100m invested (via APs) in 10-year T-notes with 2% coupon at par and 1m shares issued that are worth $100 each. Now assume the interest rate goes up to 3% (this is an example NOT A PREDICTION); no one wants to pay par for a 2% bond when they can get 3% elsewhere, so its value goes down to about 0.9 of par (not exactly due to the way the arithmetic works but close enough) and Spindoctor shares similarly slide to $90. At this price an investor gets slightly over 2% (coupon*face/basis) plus approximately 1% amortized capital gain (slightly less due to time value) per year so it's competitive with a 3% coupon at par.  As you say new bonds are available that pay 3%. But our fund doesn't hold them; we hold old bonds with a face value of $100m but a market value of only $90m. If we sell those bonds now and buy 3% bonds to (try to) replace them, we only get $90m par value of 3% bonds, so now our fund is paying a competitive 3% but NAV is still only $90.  At the other extreme, say we hold the 2% bonds to maturity, paying out only 2% interest but letting our NAV increase as the remaining term (duration) and thus discount of the bonds decreases -- assuming the market interest rate doesn't change again, which for 10 years is probably unrealistic (ignoring 2009-2016!). At the end of 10 years the 2% bonds are redeemed at par and our NAV is back to $100 -- but from the investor's point of view they've forgone $10 in interest they could have received from an alternative investment over those 10 years, which is effectively an additional investment, so the original share price of $90 was correct. When there is a difference between the two ... no trading occurs. Let's look at an example: Investor A, B, C, and D all buy/sell shares of company X. Investor A wants to sell 10 shares at $20 a share (Ask price $20 x10). Investor B wants to buy 15 shares at $10 a share (Bid price $10 x15). Since the bid price and ask price are different, no sale is made. Next Investor C comes along and wants to sell 5 shares at $14 (Ask price $14 x5). Still no sale. Investor D comes along and wants to buy 5 shares for $14 each. So a sale is finally made. At this point, the stock quote moves to $14. The ask price is $20 x10 and the bid price is $10 x15. No further trading will occur until another investor is willing to buy at $20 or sell at $10.  Another discussion of this topic is shown on this post. "4) Finally, do all companies reduce their stock price when they pay a dividend? Are they required to? There seems to be confusion behind this question.  A company does not set the price for their stock, so they can't ""reduce"" it either.  In fact, nobody sets ""the price"" for a stock. The price you see reported is simply the last price that the stock was traded at.  That trade was just one particular trade in a whole sequence of trades.  The price used for the trade is simply the price which the particular buyer and particular seller agreed to for that particular trade.  (No agreement, well then, no trade.)  There's no authority for the price other than the collection of all buyers and sellers. So what happens when Nokia declares a 55 cent dividend?  When they declare there is to be a dividend, they state the record date, which is the date which determines who will get the dividend: the owners of the shares on that date are the people who get the dividend payment.  The stock exchanges need to account for the payment so that investors know who gets it and who doesn't, so they set the ex dividend date, which is the date on which trades of the stock will first trade without the right to receive the dividend payment.  (Ex-dividend is usually about 2 days before record date.)  These dates are established well before they occur so all market participants can know exactly when this change in value will occur. When trading on ex dividend day begins, there is no authority to set a ""different"" price than the previous day's closing price.  What happens is that all (knowledgeable) market participants know that today Nokia is trading without the payment 55 cents that buyers the previous day get.  So what do they do?  They take that into consideration when they make an offer to buy stock, and probably end up offering a price that is about 55 cents less than they would have otherwise.  Similarly, sellers know they will be getting that 55 cents, so when they choose a price to offer their stock at, it will likely be about that much less than they would have asked for otherwise." It doesn't matter which exchange a share was purchased through (or if it was even purchased on an exchange at all--physical share certificates can be bought and sold outside of any exchange). A share is a share, and any share available for purchase in New York is available to be purchased in London. Buying all of a company's stock is not something that can generally be done through the stock market. The practical way to accomplish buying a company out is to purchase a controlling interest, or enough shares to have enough votes to bind the board to a specific course of action. Then vote to sell all outstanding shares to another company at a particular fixed price per share. Market capitalization is an inaccurate measure of the size of a company in the first place, but if you want to quantify it, you can take the number of outstanding shares (anywhere and everywhere) and multiply them by the price on any of the exchanges that sell it. That will give you the market capitalization in the currency that is used by whatever exchange you chose. It's done by Opening Auction (http://www.advfn.com/Help/the-opening-auction-68.html): The Opening Auction Between 07.50 and   a random time between 08.00 and   08.00.30, there will be called an auction period during which time,   limit and market orders are entered   and deleted on the order book. No   order execution takes place during   this period so it is possible that the   order book will become crossed. This   means that some buy and sell orders   may be at the same price and some buy   orders may be at higher prices than   some sell orders. At the end of the random start period,   the order book is frozen temporarily   and an order matching algorithm is   run. This calculates the price at   which the maximum volume of shares in   each security can be traded. All   orders that can be executed at this   price will be filled automatically,   subject to price and priorities. No   additional orders can be added or   deleted until the auction matching   process has been completed. The opening price for each stock will   be either a 'UT' price or, in the   event that there are no transactions   resulting form the auction, then the   first 'AT' trade will be used. At any point of time, buyer wants to purchase a stock at lesser price and seller wants to sell the stock at a higher price.  Let's consider this scenario  Company XYZ is trading at 100$, as stated above buyer wants to purchase at lower price and seller at higher price, this information will be available in Market depth, let's consider there are 5 buyers and 5 sellers, below are the details of their orders Buyers List Sellers List Highest order in buyers list will contain the bid price and bid quantity, Lowest order in Sellers list will contain the offer price and offer quantity. Now, if I want to buy 50 Stocks of company XYZ, need to place an order first, it can be either limit or Market. Limit Order : In this order, I will mention the price(buy price) at which I wish to buy, if there is any seller selling the stock less than or equal to price I have mentioned, then the order will be executed else it will be added to buyers list Market Order : In this order, I will not mention the price, if I wish to purchase 50 Stocks, then it will find the lowest offer price and buy stocks, in our case it will be 101. if I wish to purchase 200 Stocks, then it will find the lowest offer price and buy stocks, in our case it will be 2 transactions, since entire request cannot be accommodated in single order Usually the volume(Ask Volume and Offer Volume) being displayed are all Limit orders and not Market orders, Market orders are executed immediately. This is just an example, However several transactions are executed within a second, hence we will get to know the exact value only after the order is completed(executed) To add to @Victor 's answer; if you are entering a market order, and not a limit order (where you set the price you want to buy or sell at), then the Ask price is what you can expect to pay to purchase shares of stock in a long position and the Bid price is what you can expect to receive when you sell stock you own in a long position. "Market price is just the bid or offer price of the last sell or buy order in the market. The price that you actually receive or pay will be the price that the person buying the stock off you or selling it to you will accept. If there are no other participants in the market to make up the other side of your order (i.e. to buy off you if you are selling or to sell to you if you are buying) the exchange pays large banks to be ""market makers""; they fulfil your order using stocks that they don't want to either buy or sell just so that you get your order filled. When you place an order outside of market hours the order is kept on the broker's order books until the market reopens and then, at market opening time there is an opening ""auction"" at which orders are matched to opposing orders (i.e. each buy order will be matched with a sell) at a price determined by auction. You will not know what price the order was filled at until it has been filled. If you want to guarantee a price you can do so by placing a limit order that says not to pay more than a certain price for any unit of the stock."