Stocks Guide

How are Stock Prices Set Each Day?

How much does a share of stock cost?

That’s like asking how long is a piece of string. The answer is ‘it depends.’

Once a stock moves out of the IPO stage and into the open market, there are a number of factors that go into setting the price.

Opening Price

For example, Amalgamated Kumquats closes on Tuesday at 25½; what will it open at on Wednesday morning? The answer is: who knows. Most likely, it will open somewhere around 25½, but any number of things might cause it to open higher or lower. Before the market opens on Wednesday:

• Civil war in Elbonia, the prime producer of Kumquats
• President of Amalgamated Kumquats arrested for looting the company
• FDA says Kumquats cure baldness
• Huge oil reserves discovered on Amalgamated property

All of these circumstances and many others could influence the price up or down. In the end, it remains a question of what a buyer is willing to pay and a seller is willing to take.

The swirl of market, political, and industry news influences whether there are more buyers or sellers for a particular stock in the market at any one time.

Clean Slate

Every day the market opens, it’s a clean slate. Investors must meet no set prices. Stocks that the day before were flying high may not get off the ground today. The ugly duckling turns into a cash cow (how’s that for mixing metaphors).

The point is a share of stock is worth what someone else is willing to pay for it. That is the heart of investing. A stock may be a good buy at $35 per share and a terrible buy at $50 per share to one investor, however another investor may not think twice about paying $50 per share. Which is the right price? Often only time will tell. Many years ago, some investors thought $10 per share was too much for Microsoft and refused to buy it. Too bad for them.

Fair Price

Successful investors decide what a fair price for a particular stock is and that’s where they buy. They don’t let market hysteria goad them into overpaying. Likewise, if nothing has fundamentally changed with the company, but the stock is dropping along with the market, successful investors will sit tight and not be frightened off a good price. As you develop you investing skills, you will learn strategies and techniques to help you establish a fair price for stocks and either get that price or find another stock to buy that meets you investing criteria.