If you are new to the world of the Stock Market, one of the first things you have to learn is how to read a stock’s price.
This might seem really simple and rudimentary right?
This article will highlight 20 things you (probably) did not know about stock prices.
There is a lot to a stock’s price and when I think back all those years to when I began to learn about the stock market reading a stock price really took some thinking about.
For example what is the bid price? What is the difference between the bid and the ask?
What does “Last Price” mean and what does all this have to do with the price of Pineapples?
All these questions and more will be answered in the following article.
Watch this Stock Price Video, or read the article below.
How much of the Stock Price Video did you understand?
Let’s go into the video in depth with a Step By Step explanation of each of the many elements of a stock price. The example we will use is from the NASDAQ Stock Exchange.
1 – Stock Price or Share Price
Some people say stock price, some people say share price. Some people buy stocks others buy shares. Ultimately, the British and Australians say “Shares” and Americans say “Stocks”, they are both fully inter-changeable and mean the same thing.
2 – Stock Price : Last Trade
If a stock is currently trading, e.g. the Stock Exchange on which it is being traded is open, then you will see the Last Price. This is the price at which the stock last changed hands from seller to buyer. This changes often.
In the US stock markets prices are quoted in $ US Dollars. So, if you trade US you will see a stock price of $2.21.
Interesting UK Stock Price Fact !
One important thing to note is this example is from the LSE the London Stock Exchange and stock prices here are quoted in Pence. There are of course 100 Pence in a Pound. This “Last Price” is not 221.50 pounds, but 221.50 pence, or approximately 2.21 GBP (Great British Pounds).
3 – Stock Price : Trade Time
This is the time at which the last share was traded. Here you see 5:02 AM EDT (Eastern Daylight Time)
4 – Stock Price : Change
This is the difference between the last closing price and the current price (Last Price). Here we see that British Airways has increased 2.55% since the previous days close.
5 – Stock Price : Prev. Close (Previous Close)
This is the stock price of the last transaction of the previous days trading.
6 – Stock Price : Open
Now it gets interesting. The open price is the price at which the first share was traded for the current trading day. Here we see that the share price opened at 219.9, but the previous close was 216. This means the stock price gapped up on open by 0.2% (the difference between open price and previous close).
7 – Stock Price : Bid – The Price a Buyer Bids to buy a stock.
The Bid Price can be tricky to remember.
The Bid Price is the current market price offered for the stock. So if you were to sell the stock now at “Market Price” you which get roughly this price per share 221.30. The easy way to remember this is “BID TO GET RID”. The BID is the price you would get when you want to get RID of the stock.
8 – Stock Price : Ask
The Ask or Asking Price is the opposite side of the trade to the Bid Price. If you want to buy a stock this is the price that someone else is ASKING for it. The Ask is the current price that it will cost you to buy each stock. An easy way to remember this is “ASK TO BUY”
But why is there a difference? If one person is selling the stock at BID 221.30 and another is buying the Stock at ASK 221.50, there is a difference of 0.2 pence per share (in this case less than 0.1%). This is called the spread.
9 – Stock Price : Spread
In the case of British Airways on the London Stock Exchange lots of shares are traded every day. So the people handling the transaction between the buyers and the sellers have no problem finding matching partners for the transaction. When a stock is traded a lot, it means it is very Liquid, or has a lot of Liquidity. A very liquid stock generally means there is a low BID / ASK Spread. When a stock is very rarely traded and the buyers and sellers cannot agree on a price to make a trade, then the spreads tend to be larger.
Where does this difference in the BID and ASK Price go? The spread is usually the fee for the Market Maker / Broker or Specialist handling the transaction. This is not the same as the Stock Broker Fee, which you will pay per trade to your broker, for example the $9.99 per trade that goes to TD Ameritrade or other discount brokers.
10 – Special Note on Stock Price Spreads
BEWARE : Stocks with a large spread can be a problem. It tells you 2 important things:
- The stock might not have a lot of liquidity, therefore it may be harder to sell at the price or time you wish to.
- If you do buy a stock with a large spread, for example 2%. This means you would need to make a profit of 2% on the stock just to break even.
So be careful about the spread.
11 – Stock Price : Days Range
This is the range within which the stock price moved up or down for the current trading day.
12 – Stock Price : 52 week Range
The 52 week range is the value between which the stock price has moved within the last 52 weeks. Here we can see that the stock price for the last year has fluctuated between 130.80 and 255.80, so we know the current share price is towards the higher end of the 52 week range.
13 – Stock Price : Volume
Finally we see the volume. This is how many shares have changed hands during the current trading day. Here we see nearly 2.5 million individual shares changed hands today.
U.S. Stock Price Example
This the next Stock Price example we use a more recent quote for FaceBook (Ticker:FB) from the NASDAQ Stock Exchange
14 – Today’s High / Low
The highest price the stock sold for today, the lowest price the stock sold for today
15 – Previous Close
This is $164.53 – this is the last price for the previous trading day. If you look at the stock on a sunday, the previous close will be at the end of the trading day on a Friday.
16 – Stock Price 52 Week High/Low
This is a useful indicator to show the range of trading in the last year, the Highest and Lowest levels of the stock price.
17 – Market Capitalization (Cap)
This is the last price of the Stock multiplied by the number of shares outstanding. For example, if my company has 1 million shares, and the closing price of the stock yesterday was $10. The the approximate value (market capitalization) of my business is $10 Million. In this example Facebook Inc is valued at a crazy $476 Billion Dollars.
18 – P/E Ratio (Price to Earning Ratio)
This is calculated by dividing the Price per Share by the actual last reporting earning per share. This is a very important measure of the relative pricing of a firm. Read more on the P/E Ratio here.
19 – Ex Dividend Date, Dividend Payment Date, Current Yield
As Facebook has not paid a dividend so far these fields are blank.
The current yield is the Dividend per share divided by the number of shares. So, if you have 1 share work $10 and the company pays a dividend per share of $1, you will have a dividend yield of 10%
20 – Interesting Fact – Why do Stock Prices Move?
Imagine you live in the Caribbean and you own a Pineapple stand at the local market.
During harvesting season you have lots of pineapples to sell, in fact you have more pineapples that people to buy them This means the supply of pineapples is higher than demand. So, in order to sell all the pineapples and maximize your gross profit, you will reduce your prices to encourage people to buy more.
When the pineapple season is over, people still want pineapples but you have less to sell.
You still want to make a good profit, so you increase the price (Asking Price) of your pineapples. Because there are more people who want pineapples and fewer pineapples available the price will naturally rise as people will bid higher (Bid Price). This means there is more demand than supply.
Stock Price : Summary
So what is in a stock price? Quite a lot actually. Remember 3 things:
- BID to get RID (the price you will get when you sell a stock)
- ASK to BUY (the price you will pay when you buy a stock)
- Be careful of large stock price spreads as this can means there is not a liquid market with enough buyers and sellers.
- The Price Earning Ratio helps you judge the relative value of a stock compared to it’s pier in the same industry.
- The Spread is the difference between bid and ask, this is quite often what the market maker or market making system will earn to facilitate the trade.
- Stock Prices move because the equilibrium between demand and supply (buying and selling) is unbalanced.
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