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posted by
CoolHand
on Thursday April 30 2015, @06:58AM
from the at-least-someone-tweets-something-that-matters dept.
from the at-least-someone-tweets-something-that-matters dept.
Twitter was due to announce its earnings for the first quarter of the year after close of trading on the New York Stock Exchange, where the company is listed.
Except it turns out that somebody thought it would be a good idea to release this information early, on the technology-led NASDAQ run Investor Relations page for Twitter.
Initially it seemed no one really noticed the error, until a well-placed tweet highlighted the mistake and revealed Twitter's disappointing results.
http://www.bbc.com/news/technology-32511932
At one point in the final hours of trading, the stock had lost more than $8 BILLION.
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One Tweet Cost Twitter $8 Billion
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I hate mankind, for I think myself one of the best of them, and I know
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-- Samuel Johnson
(Score: 4, Interesting) by NCommander on Thursday April 30 2015, @08:10AM
Theoretically, stock prices represent the value of a company of a whole; stock price*total number of shares == value of company.
Honestly, the two seem vastly disconnected from each other. I've never understood what *exactly* sets a share price; I know when its IPOed, its at a price SEC sets and on the S-1 form, but I never understood what physically controls the prices on the market ...
Still always moving
(Score: 1, Informative) by Anonymous Coward on Thursday April 30 2015, @08:15AM
Prices are set by shared psychosis.
(Score: 2) by GreatAuntAnesthesia on Thursday April 30 2015, @08:33AM
> I never understood what physically controls the prices on the market ...
Nobody does. That's why playing the stock market is as much a gamble as betting on the gee-gees. Seriously, if you *did* understand what controls the market, you'd be a billionaire.
(Score: 0) by Anonymous Coward on Thursday April 30 2015, @08:38AM
You mean everybody does. So all you need to do is convince absolutely everybody buying and selling stock to agree upon the exact price that you want, and you control the market. But good luck with that, because if herding cats is impossible, humans are utterly batshit insane.
(Score: 1, Insightful) by Anonymous Coward on Thursday April 30 2015, @10:11AM
Herding cats is difficult because cats are generally individualistic in nature. Humans, on the other hand, by and large are naturally social/herd animals, so are far easier to control as a group using various carrots, sticks, and blinkers.
(Score: 2) by NCommander on Thursday April 30 2015, @08:41AM
Well, at the heart of it, there has a to be a computer (or at least a person) that controls these prices. I've asked people who work at trading firms, and I never can get an answer, and then are insulted by the idea that the price of a stock is a variable in a computer program at a stock exchange. I know pre-computerization, a stock price was basically determined by traders physically on the floor calling out prices, and seeing who would accept that offer, but that part of the system appears to have vanished.
Still always moving
(Score: -1, Troll) by Anonymous Coward on Thursday April 30 2015, @08:52AM
Holy hell, dude, you mean it's like they learned to call out their price offers using computers or something? Who would have guessed that computers can be used to communicate?
(Score: 5, Informative) by schad on Thursday April 30 2015, @01:49PM
Oh, that's what you're asking?
There are two prices for any stock. The bid is what someone will pay to buy the stock. The ask is what someone who currently has the stock will sell it at. The difference between the two prices is called the spread. Generally, as trading volume increases, the spread narrows; and as volume decreases, the spread widens. The spread is therefore often used as a measure of liquidity (how easy it is to trade a particular stock).
The role of the stock market -- originally floor traders, but now it's computers -- is to match up buyers and sellers. This may seem like a really simple thing, but stock is never sold individually. It's sold in bigger lots of 100s or 1000s of shares or more. So if you want to buy 100 TWTR at 40.00, you may not be able to even if there's someone offering 1000 TWTR at 40.00 -- because those 1000 shares won't be split to meet your offer. Instead, the computers will look only for 100 shares, and if the only 100-share offer is at 40.05, there's no match. Exact details vary. Some markets may split orders. But I think they all match orders atomically: either your order is completely fulfilled, or it is not fulfilled at all. Nothing in between.
(This is where HFT gets involved. You put in a sell order for 1000 TWTR at 40.00. The HFT sees there are 10 buy orders for 100 TWTR at 40.05. It will buy the 1000 shares at 40.00, split them into 10 lots of 100 each, and put them back out at 40.05. The exchange will then match them up with the buy orders and the HFT will make have made $50. When HFT proponents talk about "increased liquidity," this is exactly what they're talking about. HFT does a lot of much-worse things too, but to the extent that it has any beneficial effect, this is what it is.)
Smaller transactions happen outside of the "actual" exchange. What happens is that your broker owns some shares in everything, and you are actually buying from or selling to him. And, in fact, your broker probably isn't on the exchange either. This is part of the reason that they all warn you that trades may not execute immediately (or at all). If you try to buy a stock that your broker doesn't have, somebody -- your broker, his broker; somebody -- has to buy it for you. And that may involve buying 1000 shares of it even though you only asked for 1. To come up with the funds for that, there might be assorted other transactions. This is all computerized too, which is why basically all brokers can instantly execute your orders these days. And that's why it's bullshit that there are transaction fees (back when this stuff involved making lots of phone calls and such, it was much more reasonable to pay your broker per transaction).
All of these details vary by what you're trading, where you're trading, and (at least potentially) how much money you have at your disposal. But this is the gist of it.
By the way, the price you see quoted is generally the last transaction price, which will usually be very close to the lowest current ask price. The price quoted by your broker may well be different. That's because you're buying from your broker, not the market. But they try to keep the prices close.
Does that answer your question?
(Score: 0) by Anonymous Coward on Friday May 01 2015, @06:27AM
Three. There are three prices for any stock. The third is set by the originating corporation and it is the par value. That is, the value the company which the shares represent a part of have set on shares and record in their books.
This is an accounting and law issue that most people not interested in corporate books or governance don't think about, as the markets run on faith, bots, and insanity. It might as well be another plane of existence.
(Score: 0) by Anonymous Coward on Thursday April 30 2015, @04:44PM
Theoretically it's expected future dividends that's supposed to ultimately determine the stock price. What's the point of stock traders as a whole holding stocks if they don't get anything out of it. Realistically it doesn't really work that way.
(Score: 2) by SecurityGuy on Thursday April 30 2015, @05:58PM
That's exactly right. It doesn't work that way in practice because we don't know today what those future dividends or other cash flows will be. If we did, and could correctly know our expected rate of return in putting that money somewhere else, we could precisely price stocks.
(Score: 2) by TheRaven on Thursday April 30 2015, @09:07AM
sudo mod me up
(Score: 4, Informative) by Non Sequor on Thursday April 30 2015, @09:18AM
Market prices are best described as a mixture of concrete valuations based on things such as
Modern economics and the accounting standards organizations in particular are currently aggressively pushing the idea that all of these different ways of looking at stock value should converge to the stock's current price. Any lack of convergence is viewed as "inefficiency" because they claim it does not reflect all of the information that investors have about how these valuations should be performed.
The truth is that all of the valuations should be tied together with rubber bands. They can drift apart, but eventually that creates an opportunity for someone to make money by doing something that tightens the rubber bands. The idea that the rubber bands should be perfectly tight is a bit silly.
Literal changes in the stock price are actually mediated through market makers. This is a bank or other institution that sits on an "inventory" of shares of the stock and they set a bid price and an asking price where the bid is lower than the ask. They protect themselves from the possibility that the price of their inventory changes underneath them by buying, selling, or "writing" options on the stock that zero out their profit or loss if the stock price changes. They move the bid and ask prices in response to people's actions. If people are buying and selling in equal volume, the price stays level, if there's a tilt in one direction, the price moves that way. (Note however that traditional marketmaking is essentially being replaced by HFT algorithms.)
Write your congressman. Tell him he sucks.
(Score: 0) by Anonymous Coward on Thursday April 30 2015, @11:03AM
The "correct" value of a company is how much its dividends will pay from now to eternity (corrected with inflation etc, of course). The stock price should reflect the current approximation of that. If it's obviously more or less than that, we are dealing with gambling rather than investment.
(Score: 1) by Rickter on Thursday April 30 2015, @11:28AM
Ideally, the price of a stock would be priced based on the present value of future (predicted) profits, discounted for how far in the future those profits at a rate based on the risk of that stock. And most large caps (Microsoft, Apple, Walmart, etc.) are priced this way.
Stocks of companies that aren't profitable yet, or companies that still have significant room to grow have their prices set more by the people who are most excited by the potential of the company, even if the expectations are realistic. So, if investor A decides he's willing to pay 50 times the profit for a company, and investor B is only willing to pay 10, who do you think the current stock owner is going to sell to? Investor A who is willing to pay more, but that isn't going to make him a lot of profit when the company stops growing UNLESS the company can keep growing for two or three decades to overcome the price disadvantage. If you want to want to understand more about this, you might be interested in reading about investing and emotion (I find that Elliot wave analysts, based on Fibonacci number analysis of market prices are excellent at explaining this), v. fundamental investing, which takes a more analytical approach.
(Score: 2) by snick on Thursday April 30 2015, @01:07PM
High speed traders.
They take their skim from every transaction executed by mere mortals, while providing exactly no value in efficient allocation of capital.
(Score: 0) by Anonymous Coward on Thursday April 30 2015, @01:47PM
> what physically controls the prices on the market
Supply and demand spread of thousands and thousands of individual investors.