Fallon

So, I'm creating a virtual stock market on my game, and I'm trying to make it as realistic as I can, within reason and such.
What I'm having a problem with though is the basis of how the stock market is.
I understand that when you buy stock in a company, you are becoming part of the ownership. But, how does the price shift and such.
Like why does the price go up and down all the time.

lordjeebus

There's no set price for buying stock in the stock market. If a stock's in demand, the price will go up because the seller can set a higher price and still find a buyer. Conversely, if there's low demand the seller will only find buyers at a lower price.

Yakk

Fallon, prices are a hard part of economics, especially if you want to dynamically model prices instead of statically modeling them.

The price of a stock is simply the last price that two people exchanged the stock at -- or, possibly, it could be that price, but bounded on one side by offers and the other by requests.

So, we have Alice, Bob, Charlie and Debbie.

Alice offers the stock for 5$.
Bob buys it.
The stock market now "knows" the stock is worth 5$.
Time passes.
Charlie offers the stock for sale at 6$. This does not change the price of the stock (although some (many) stock market charts expose the offer/request prices).
Time passes.
Debbie offers to buy the stock at 5.50$. Charlies offer is still open.

Now, is the stock worth 5$ or is it worth >= 5.50$ and <= 6$? Depending on how you define it "worth" of a stock.

Now, Charlie looks at Debbie, and thinks "that's a decent offer, I'll take it", and changes his asking price to 5.50$: voila, the stock's price is now 5.50$.

Why ABC and D are selling/buying stock at a particular price is yet another problem.

__________________
Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.

BigBlueWrecking

Yeah, it is truly supply and demand. Now what people look at to value a stock can varry, but if I want to pay 400 bucks a share for a 10 dollar stock, I can. The stock market is basically like a flea market where people buy and sell based on what they feel.

tokaok

also the main purpose of the stock market is for those with cash(capital) to invest ina growing comapany and there for claim part of the profits for themeselves.

not none of this day trading crap where alot new people think the stock market is just a big freaking casino that they can go play at for the day.

Yakk

Tokaok, day trading and other forms of "game based" stock market playing should actually help the stock market function. They clean out flaws/mistakes in the market (mispricings etc), until the flaws are no longer profitable.

I don't know if it works in practice, but in theory once a market gets large enough such activities could be considered benefitial. I'd personally love it if someone figured out a less wasteful way of doing it, I'd admit!

__________________
Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.

BigBlueWrecking

Actually, Day trading hurts it. The stock market is not helped by excessive trading. It can hide problems and does nothing to clean out flaws. Not sure what theory you speak of.

lytri

Actually, the more trading that occurs for a stock, the more normalized the price will be to what the majority of people value it at. Stocks with very low trading could take much longer to react to an arbitrage opportunity. High volume will quickly erase any arbitrage opportunity out there.

__________________
-={}=-
Rational Anarchy