The price
is calculated by electronically matching bids and offers for a particular share
recorded an electronic limit order book (ELOB). When you place an order to buy
a share at a certain price that is called your “bid” and when you place an
order to sell your..........blah blah blah blah........
Getting bored? Going upon your head, huh?
Okay, let's make it easy.
Imagine you bought a pen for 10
bucks. Next day a friend of your offered you to sellit for 15 to
him.
Now my question. What's the price of pen?
Absolutely 15. You
can encash 15 bucks by selling it.
You rejected his offers hoping
that may your other friends bid more than 15.
Next day in school, your friends got a sight of
your pen. Again 5 of your friends offered you to sell it for 10, 15, 20, 25, 30
respectively.
Now what's the price?
Yeah, 30. The
highest bidder urge to pay 30.
Now again you rejected the offer hoping
that tomorrow its price may hike more.
Exactly what you thought happened. You and your pen
become popular in school and the highest amount offered by people was 50.
Now your greed acted inside you, so you again
rejected the offers hoping for some more appreciation in price.
This time the luck was not with you. A Companion bought
more unique pen than your.
This affect the price of your pen a lot. Most of
your customer attracted by your companion's pen. Your pen lost 90% of
its value and only bunch of people were ready to pay you 5 bucks only.
This is how demand and supply affect the price of a
product. And stocks are a product. When investors are optimist and ready to pay
higher cash than its current price, price appreciated and in pessimist
behaviour price drops.
There was a huge demand of your pen in market and
supply was only one (assumed that only one pen of your brand was available in
market).
But after your companion's entry, supply increased
and demand remain the same, price dropped.
It may also possible that some are ready to pay 15
and some are ready to pay 5 bucks. Although in real world you'll sell your pen
to the one who is offering 15 because you know there person but in the
world of stock market, you don't know from whom you're are buying stocks or to
whom you're selling your stocks. In this case average price is quoted
like (in above case) 10 (5+15/2) provided weightage of buyer and seller are
equal.
I can also make it complex by saying that only 2 persons are ready to
buy your pen at 15 bucks and 13 students for only 5 bucks. In this case weighted
average price will be calculated.
But there's no need to go much deeper just keep a
small concept in your mind:
·
When demand >
supply, price increases.
·
When demand <
supply, price decreases.
BSE and NSE have huge algorithm machines which
determine the price of stocks on the basis of volume traded. Lakhs of people and crores of shares are
traded everyday.
You can get every information regarding volume traded,
bidding, offering etc on web (a quick example is illustrated below)
There are also many other reasons for change in
price like stock split, merging, demerging, dividend distribution etc.
What? Price
changes due to dividend distribution, how is it possible?
Now let's tackle your sub questions in
prime question detail.
Ques: If I buy 1 lac shares of the above stock at
price 271.55 .Will the stock price rise ?
Yeah, the stock price will rise to 271.55 as you're
are the highest bidder among all investors and your high bid will push the
stock price up. (Subject to many other reasons, sometime people didn't
disclose their bid/offer in public)
But as shown in the image above, offerers are very
low so it'll be hard to execute your 1 lakh share bid.
Ques: If I sell 50,000 shares from my demat at price
270.70 ,will the stock price fall ?
Same reason as above, you're the lowest offerer
among all others, so it'll turn the price down. (Subject to many other
reason, it's just a basic reason)
Ques: What does "Best 5 Bids/Offers
table" show?
I suppose this should be your first question.
·
Best 5 bids - next best nearest price at which people are ready
to buy stock.
·
Best 5 offers - next best nearest price at which people are
ready to sell stock.
Ques: If only 10 Qty. at price 271.55 if someone
place buy for 20 quantity. what will happen ?
As per my knowledge only 10 stocks will be traded.
I can't clearly say about it as it had never happened with me. If anybody know
about it then notify in comments.
Some time it happens that you have put a buy or
sell limit price to Rs 100 and then share go to 100 and come back again to
lower value but your trade does not get executed.
So why this happens? Because of 2
reasons:
·
There was no one for selling at Rs
100 (very rare case)
·
Enough quantity was not available at
Rs 100, for example 500 quantities are available at Rs 100 but before you,
someone else order was pending so his order will get executed first than yours.
Some time it happens that you have put a buy or
sell limit price to Rs 100 and then share go to 100 and come back again to
lower value but your trade does not get executed.
So why this happens? Because of 2
reasons:
·
There was no one for selling at Rs
100 (very rare case)
·
Enough quantity was not available at
Rs 100, for example 500 quantities are available at Rs 100 but before you,
someone else order was pending so his order will get executed first than yours.
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