Stock Quotes
Word Count:
506
Summary:
Stock quotes are always in flux. The price of a stock is changing because
it underlies the laws of supply and demand. Imagine that the price of a
stock on the stock exchange always reflects the value of the underlying
company in the far or near future and not the current value, then you
will understand that the stock price has to change in the present all
time. People's belief about the company's future value drives the stock
pricing.
Stock quotes are made by the market ma...
Keywords:
stocks, stock market, stock quotes, penny stocks, discount stock broker,
options, stock trading
Article Body:
Stock quotes are always in flux. The price of a stock is changing because
it underlies the laws of supply and demand. Imagine that the price of a
stock on the stock exchange always reflects the value of the underlying
company in the far or near future and not the current value, then you
will understand that the stock price has to change in the present all
time. People's belief about the company's future value drives the stock
pricing.
Stock quotes are made by the market makers. It's their job to make the
market in a stock and therefore they have to post a current bid and ask
price at all times during market hours.
The bid price is the price where the market maker will buy from you. The
ask price is the price where he sells to you. You must always buy the
higher ask and can only sell to the lower bid price. The difference is
called the spread and it is the income of the market maker.
If you put yourself in the role of the market maker then you will
understand how it works. He has to buy or sell from you even when he has
nobody else to trade with. That's his job but it has big risks. The only
way to control this risk is to control the spread.
That's why stock quotes are changing as well because the spread changes.
The spread will widen for instance when there is very low share volume or
when the stock moves very fast. Both situations inherit higher risk for
the market maker, therefore the higher spread. On the other side a slow
market will narrow the spread. Also when a lot of buyers and sellers
lining up the risk is reduced and the spread goes down. The spread can be
several points or dollars in the worst case but in the well known big
stocks it's only a few cents.
Normally a stock is just a portion of the company and therefore should
reflect the value of the company and nothing else. In the very long term
this is maybe true but short and mid term there are too many things that
influence the perceived value. The stock quotes can change several points
or percent within hours although nothing new had happened to the company
itself but certain factors were interpreted to have effect now or later.
If the overall market is positive for instance, then your stock is likely
to go up too because people believe it will. The stock price can go down
dramatically in one day although the company reported good earnings the
very same day. Just because there were bad general or sector news. The
market went down and took your stock with it.
Don't make the mistake to believe that you can predict share prices.
Nobody can even predict the price for the next five seconds. Successful
traders don't try to control the stock quotes but take the whole
environment and its possible impacts into consideration.