How Are Stock Prices Determined?


Quick Answer

Initially, stock prices are set by the company with the help of an investment bank and approval of the exchange, according to Jean Folger for Investopedia. After the initial public offering, the market determines the price of the stock.

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How Are Stock Prices Determined?
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Full Answer

When a company decides to go public, it must set a stock price for its initial public offering, according to Folger. To do so, it asks an investment bank or a group of banks to look at its overall well-being as a company, notes Mark Koba for CNBC. Through a practice called road shows, two entities together test the price on potential buyers, explains Folger. Once they settle on a price, as the final step, they offer it to the U.S. Securities and Exchange Commission to evaluate. The SEC ensures the company is in line with all the regulations required of a publicly traded company, states Koba.

Once the company goes through the initial public offering, the prices fluctuate due to market trends and forces, according to Marshall Brain and Dave Roos for HowStuffWorks. For instance, supply and demand for a particular stock affect how prices go up or down. That is, if more people want the stock, the price of the stock goes up, as only a limited amount of each stock is on the market. The reverse is also true.

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