SYNOPSIS: Nearly thirty million Americans are shareowner, but few people have ever seen how stock prices are determined.
SYNOPSIS: Nearly thirty million Americans are shareowner, but few people have ever seen how stock prices are determined. Now, for the first time, the American Stock Exchange shows how it's done. Stock prices are set by investors by supply and demand. Take Intercostal Foods Corporation, a fictional company. Its symbol, ITF...last sale, 291/8. Investors express a range of judgement on the price at which they are willing to buy or sell a particular security.
The highest public proposal to buy is called the BID. Here it's 28 1/2.
The lowest public proposal to sell is the OFFER. Here it's 30.
The would-be buyer and seller are a dollar-fifty apart. Exchange rules require the stock specialist to narrow the spread between the public bid and offer by posting a higher bid of a lower offer for his own account. Here, he bids 29 and offers stock at 29 1/4. The next trade will take place within this range.
This concentration, of all investor interest in ITE of all bids and offers plus the help of the stock specialist has determined the price per share.
A report of this transaction is immediately transmitted throughout the world.
A quarter of a billion dollars can change hands during an Amex trading session, but the investor is the key to the pricing mechanism.