Does the value of your stock change with the price?

NewKidOnTheBlock_2

This isn't immediately clear to me but the stock price updates every second pretty much so I wanted to clarify how the price works.

1 second duration
Buy £5000 worth of stock
Stock price increases by 2%
Your stock is now worth £5100
Stock price drops by 2%
Your stock is now worth £4998

Or does it happen like this

>1 second duration
Buy £5000 worth of stock
Stock price increases by 2%
Your stock is still valued at £5000 because you have not sold it
Stock price drops 2%
Your stock is still worth £5000 because you have not sold it
Stock price rises by 5%
You sell your stock which is now valued at £5000+5%

I know I'm probably doing a terrible job explaining what I'm trying to get across but hopefully someone gets what I'm trying to ask.

ChesterDog

No, I can see exactly what you are asking and, yes, the value is the current market price multiplied by the number of shares you hold, changing moment by moment - in many cases - through the trading hours and even beyond.

However, there are other factors to consider, like the - bid-offer spread (selling price and buying price differ), charges incurred in buying and selling, the physical amount of shares involved (if very large, it may not be possible to sell at the apparent current price) and so on.

The value of anything at all at any point in time is exactly the amount someone is willing to pay for it.

NewKidOnTheBlock_2

ChesterDog wrote: »

No, I can see exactly what you are asking and, yes, the value is the current market price multiplied by the number of shares you hold, changing moment by moment - in many cases - through the trading hours and even beyond.

However, there are other factors to consider, like the - bid-offer spread (selling price and buying price differ), charges incurred in buying and selling, the physical amount of shares involved (if very large, it may not be possible to sell at the apparent current price) and so on.

The value of anything at all at any point in time is exactly the amount someone is willing to pay for it.

So just to be clear in the two options that I mentioned the first one is true?

ChesterDog

Yes.

I removed my edit - I had misinterpreted you.

coyrls

NewKidOnTheBlock wrote: »

So just to be clear in the two options that I mentioned the first one is true?

Your gains and losses are determined by the share price but you don't realise a gain or a loss until you sell.

NewKidOnTheBlock_2

coyrls wrote: »

Your gains and losses are determined by the share price but you don't realise a gain or a loss until you sell.

So just to be absolutely certain I understand what you're saying because I need to be sure.

If you buy £5000 worth of shares and the price drops 5% your shares are still worth £5000 as long as you don't sell them. So you can hold onto them until the price rises by 3% for example and then sell them for £5000+3% = £5150 rather than (£5000 - 5%) + (3%) = £4982.5

seacaitch

Stocks are little different to houses or cars: when you come to sell, you get what someone else is willing to pay at that precise point in time (per ChesterDog).

The distracting thing is that because stocks are fungible (ie. one ordinary share in BT is identical to any other BT ordinary share) a ready market is being made in stocks every day that the market is open, which gives you constant visibility of the sort of price you could obtain if you were to sell. The precise price you receive will only be determined when you actually make the trade.

I wouldn't get too hung up on the % question; that's just individual platform providers, websites, etc choosing to represent the current % change in price on the current day for information purposes.

FWIW if new to investing, you would do well not to spend too much time staring at stock prices, particularly intra-day price fluctuations. Before you know it you'll be mesmerised into thinking you can easily exploit them and maybe find yourself gambling on day trades that soon empty your pockets and get you sidetracked away from more productive and wealth-building approaches to longer term investing!

ChesterDog

NewKidOnTheBlock wrote: »

So just to be absolutely certain I understand what you're saying because I need to be sure.

If you buy £5000 worth of shares and the price drops 5% your shares are still worth £5000 as long as you don't sell them. So you can hold onto them until the price rises by 3% for example and then sell them for £5000+3% = £5150 rather than (£5000 - 5%) + (3%) = £4982.5

No. If the price drops 90% but you hang on, and it rises 10% from that point, you will still be weeping into your cornflakes. But you still don't have to sell, of course.

The percentage changes shown relate to the change in price (value, but with stated caveats) since the previous day's price at the maket's close.

ColdIron

You are probably confusing the issue by thinking of percentages, obviously 2% of £5,000 is not the same as 2% of £5,100. Going up 2% and down 2% again does not leave you in the same position

It's better to just consider the share price

If the share price was £500 per share and you bought 10 of them it's cost you £5,000 and that is what they are worth at that point in time. The share price then goes up to £510. Your shares are now worth £5,100. The share price then reverts to £500 per share so your shares are worth £5,000 again

NewKidOnTheBlock_2

ColdIron wrote: »

You are probably confusing the issue by thinking of percentages, obviously 2% of £5,000 is not the same as 2% of £5,100. Going up 2% and down 2% again does not leave you in the same position

It's better to just consider the share price

If the share price was £500 per share and you bought 10 of them it's cost you £5,000 and that is what they are worth at that point in time. The share price then goes up to £510. Your shares are now worth £5,100. The share price then reverts to £500 per share so your shares are worth £5,000 again

Ok so you can easily hold onto your shares and see if the market picks up... So say the share price is £500 and it drops to £490, £480, £460 but then by 4pm the price rose to £510 and you sell you'd make profit.

Thanks for clearing it up. Yes the percentage thing was really confusing me.

coyrls

NewKidOnTheBlock wrote: »

Ok so you can easily hold onto your shares and see if the market picks up... So say the share price is £500 and it drops to £490, £480, £460 but then by 4pm the price rose to £510 and you sell you'd make profit.

Thanks for clearing it up. Yes the percentage thing was really confusing me.

Just be aware that what goes down doesn't necessarily come back up again.