What are stock prices?
Stock prices are the values of investment products at a certain moment on the stock exchange. These can be stocks or ETFs, for example. These values show what buyers are willing to pay and for how much sellers are willing to sell. The values change constantly based on supply and demand. You can find stock prices on the AEX, for example.
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The origin of the stock price
Stock prices are not a new invention. Traders could already invest in the voyages of the Dutch East India Company (VOC) in the 17th century. In exchange, they received a receipt or certificate of a stock. This gave rise to the first stock prices: prices based on what people were willing to pay to take over those stocks from each other, reflecting their expectations of future profits.
Then, just like now, supply and demand determined the price. Anyone who wanted to buy a lot of stocks drove the price up; anyone who wanted to sell a lot pushed it down. Today, this happens at lightning speed. Exchanges like Euronext use automated trading platforms where millions of transactions take place every day.
What is the purpose of a stock price?
The purpose of a stock price is to give investors insight into how much a financial product is worth at a certain moment. It is a benchmark for a company’s financial performance and is continuously determined by the bid price (what buyers want to pay) and the ask price (what sellers want to receive). This determines whether an investor wants to invest in that company or not.
Additionally, the constantly changing stock price ensures that the financial product remains quickly and easily tradable (liquidity). The stock price also shows companies what their total market value is, so they can increase confidence and issue more stocks to raise capital for growth and investments.
The influence of stock prices on the economy
You can see stock prices as a thermometer for confidence in the economy. If prices generally rise, confidence in companies grows, and investors and households are willing to spend money. With falling prices, the opposite often happens: people keep their wallets closed, and confidence in the economy is low. This can lead to a recession. Confidence can even drop so low that a stock market crash occurs: a sudden, sharp drop in stock prices. A famous crash is, for example, the stock market crash of 1929, which heralded the Great Depression.
Primarily stock indices from the United States, such as the Dow Jones or S&P 500, are a good barometer for economic health. When the economy is doing less well in the US, you can often notice this in the Netherlands too. And vice versa.
How do stock prices work?
Stock prices work via supply and demand. Think of it as a sort of auction. Suppose a potential buyer wants to buy a stock for € 100 (the bid price). Someone has a stock of the same company and wants to sell it for € 100 (the ask price). That means a transaction can take place, and the value of the stock price at that moment is € 100. The price you see is, therefore, the price of the last successful transaction where ownership changed hands.
You see the dynamic above with every investment product. Suppose there is positive news about a company. More people want to buy the stock, causing the market value to rise. Do more people want to sell a stock? Then there is a lot of supply, and the price falls. The constant movement of the price – in both upward and downward directions – is called volatility.
Trading takes place largely automatically via electronic systems that continuously keep track of who wants to buy or sell what. Because of this, stock prices can change. This happens in real-time or with a slight delay of fifteen or thirty minutes.
How are stock prices determined?
Stock prices are thus determined by supply and demand. However, various factors influence this supply and demand and thereby shift the bid and ask prices. Take a look:
- Company results: Profit figures, new contracts, or redundancies influence expectations about the company’s future profit.
- Economic data: Interest rate changes, inflation figures, and unemployment data influence investor sentiment.
- Market sentiment and speculation: Large-scale optimism or pessimism in the market, often driven by the news or politics, can cause waves of buying or selling.
Where can you find stock prices?
Nowadays, you no longer need to open a newspaper to find price information. There are all sorts of places where you can find up-to-date info on stock prices. For example:
Investment apps: Via the BUX app, you can find up-to-date stock prices of various stocks, ETFs, and ETCs. You need an investment account for this.
Financial websites: On these sites, you will find price overviews, charts, risers and fallers, and indicators of the biggest movers.
Personal watchlist: With your own watchlist, which you also find in our app, you follow your favourite stocks, ETFs, and more, and get notifications on movements.
With interactive charts and updates, you can see at a glance how your stocks are performing. This way, you stay well-informed and can trade immediately when you see opportunities.
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All views, opinions, and analyses in this article should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.
