When investors sells shares of a company,someone will be the buyer of those shares,then why will stock value of a company decreases.And why stock value of a company increases when buying happens.Please explain me the whole concept of stock market in detail.
Thanks…..
HARVEY
Comments
Well the value of the shares has less to do with how many people are buying/selling and more to do with at what price they are willing to agree upon.
If I really want to sell 100 shares of something right now for any price I’ll just go online and see what people are currently bidding for it and then sell it to them for that price. If that bid price is lower than the last trade of that company’s shares, then the stock price will have gone down.
On the other hand if I really want to buy 100 shares of that same company then I am currently in a bidding war with all of the other people who at that moment want to buy the stock. I won’t get it if I don’t ask for more than everyone else so I may just go ahead and buy at the seller’s asking price. If that is more or less than the last trade of that stock then the stock will have gone either up or down.
That’s pretty much it. If some information comes out saying that company X may go bankrupt (for example) then nobody probably wants to buy company X for any price, so the bid price drops to zero. If I really want to sell my 100 shares of company X at this point, then I’m in trouble because I won’t be able to find anyone who wants to buy it for any price.
But maybe some people think that company X will actually survive and that the stock will thus be worth significantly more in the future. (let’s pretend company X is GM). Then there may actually be quite a few people bidding for the shares and competing with eachother, which drives the stock price up.
It is called a secondary market. i.e. the price of the shares going up or down does not directly affect the company, only it’s stock market valuation. Of course the value of a company’s shares can have an indirect effect on it. Sometimes their overdraft is allowed only if the share price stays above a certain level, called a banking covenant, I think. Also if the company wanted to raise money via it’s shareholders (rights issue), it is easier to do with the share price higher.
