How is the stock price of a company decided?

People are so confused with stock prices and the stock market. Every company has its own value and it is reflected in its stock price. There is a real business behind these complex products and these stock prices. First of all, it is important to know about face value and the trading price.

stock price

Face value

When there is no change in the price of business and it remains the same. For example, a company has 1000 shares @ Rs 5 a share. If the company increases the face value of its share to Rs 10 then the no. of shares reduces to 500 only. In the above procedure, the price of business remains the same. Face value can only be changed by the company. Whenever a company changes its face value, it has the same effect on trading price because of the circulation changes.

Trading price

If a company is listed on an exchange then its share price is determined by the supply and demand of the share. If more people are buying the share then the price goes up until it finds equilibrium. If more people are selling the share, the price of share falls. The trading price of any share is directly proportional to the profit and maturity of the company.

Must Read: How to Choose Companies to Invest In the Stock Market?

What happens to the listed shares?

An investor pays for the share that are the future returns a company makes. Company’s future plans and current business is subjective to its future returns. While the overall industry and economic situation play the main role in determining the share price.

How much return will you get?

Almost complete market research is based on how much money a business will make in the future.

Must Read: How much money do you need to invest in stocks market?

Two main methods for price estimation:

  1. Price-earnings method– It is the ratio between the current market price and trailing 12 months EPS (Earnings Per Share). This ratio shows how much will market pay today.
  2. Cash flow method- It is a popular method for companies that do not depend on much debt.

Calculation of present value

Present value= FCF/ (1+R) n

R= Discount rate

A discount rate is defined as the lowest rate of return from the investment. The rate which bank fixed deposit demands.

N= Number of years

Must Read: Share market investment tips for early-stage investors

In a determination of stock price, 2 factors play an important role.

  1. Forecasting of future returns

Future is uncertain and many opinions and predictions can be true. This creates different growth track for the company and people pays a different price for the same stock. This changes the company’s stock constantly.

  1. Manipulation

A business is not run by morally pure or most ethically people. There are corrupt promoters, news breakers, insiders, operators and so on. Many sellers and buyers take the price of a share to a new level where it makes no sense.

Conclusion

Many factors are responsible for a stock’s price. Stock price depends on the company’s business, how it is going and other factors. The demand and supply of the stock are also responsible for the stock’s price, how often investors are buying or selling the stocks etc. Here we have discussed many facts that are responsible for the stock’s price.

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Which one is better BSE or NSE?

The leading stock exchanges in India are BSE and NSE. You have to understand the difference between these two if you are planning to invest in the Indian stock market. These two are medium of exchanges to trade.

BSE or NSE Stock Exchanges

What is BSE?

BSE (Bombay Stock Exchange) established in 1875 by Premchand Roychand and oldest stock exchange in India. It has approx 6000 listed stocks and capitalization of $2.3 trillion. BOLT (BSE Online Trading System) was started in 1995 and had a capacity of 8 million orders per day. BSE is the world’s 10th largest stock exchange. The association of person is changed into a separate legal entity which is known as Bombay Stock Exchange.

What is NSE?

NSE (National Stock Exchange) founded in 1992, and it is the first electronic stock exchange in India. In 1994, it launched electronic screen-based trading.

In NSE you can do trading in the following-

  • Shares
  • Retail debt market
  • Futures and options
  • Wholesale debt market
  • Mutual funds currency futures

Difference between BSE and NSE

The trading volume of individual stocks in BSE is much lower than NSE. For intraday trading, NSE is a better choice. For high-risk online transactions, NSE has better software. BSE is for an investor who is more conservative.

The benchmark index for BSE is Sensex and for NSE it is Nifty. In BSE, Sensex consists of 30 companies while in NSE; nifty consists of 50 stocks from 22 sectors of the economy. NSE has its network in over 2000 cities while BSE has only in 417 cities.

In NSE the volume of shares is higher than BSE, which means NSE is a better option in exchanges. But some shares are not available on NSE, so you have only one option BSE for that. Stocks like Spice Jet and Claris Lifesciences are not available in NSE. There is no confirmation for, where you get a better price for the stock. You have to compare the price before buying or selling it.

For investing in a stock exchange, it totally depends on the choice of an investor where one is getting a better option. BSE started an association of persons in 1875, which was recognized as a stock exchange in 1957. NSE established in 1992 as a tax paying company, and in 1993 it was accredited as a stock exchange.

Conclusion

In terms of selling large quantities, you can sell them on the NSE because it has huge volumes and maybe you get a better price. Shares which are not very liquid NSE is especially for that. Both stock exchanges are recognized by the Securities and Exchange Board of India (SEBI). Otherwise, there is no major difference between BSE and NSE.

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Stock Market Tips and Tricks For Beginners

Everyone is looking for an easy and quick way to be rich. Searching for quick ways for stock trading we have to see the powerful tools which are available to us. For earning money fast you should pay lots of attention in many factors during stock trading.

stockmarkettips

Here are some factors for an investor to be followed.

  1. Choose strong companies

Before investing choose some strong companies, which are able to stand in market fluctuations. These companies offer greater liquidity and better returns in a long term for the investor. Strong companies are more trustworthy; if you are investing money for a good return you have to research the market before invest.

  1. Set long term goals

When you are investing in the stock market, you should have more patience. Long term goals are quite profitable; don’t see the small market fluctuations. Before investing know your goals for which purpose you need that money, according to that hold your stock which is also known as positional trading. To know how much money you need for the future, you can use the free financial calculator available on the internet.

  1. Control your emotions

The main obstacle to the stock market profit is an inability to control your emotions by which one can’t make logical decisions. ‘Bear’ is known as a person who feels negative for the market, while the ‘Bull’ is the positive counterpart. In the stock market, some short term movements are driven by speculations, rumors, emotions, and hopes. In stock market, thoughts like stock price performed as expected so should I sell the stock or hold for another better price are common. So it is mandatory to control your emotion.

  1. Understand your risk tolerance

Risk tolerance is positively influenced by income, education and wealth. It is negatively influenced by age, risk tolerance decreases as one gets older. Especially in investing, the idea of perception is important. As you get more knowledge about investments, you will take more risk from the beginning. Always make investments which don’t make you anxious; so by a cool mind, one can concentrate more in the market.

  1. Handle basics first

Before making the investment, take enough time to learn the basics of the stock market. Only a few times the stock moves in the same direction, so be aware of that.

Risk tolerance and knowledge are linked. As Warren Buffett said, “Risk comes from not knowing what you are doing.”

Before investing you should be familiar with these areas:

  • Financial metrics and definitions
  • Stock market order types
  • A popular method of stock selection and timing
  • Different types of investment accounts

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