How to calculate price of a share is the frequently asked question. The people who work in the stock exchange or who are interested to work or invest in stock exchange in future come up with the questions of calculating prices of the shares. The people interested in stock exchange mostly are concerned with the mechanics in which a share price is calculated. They have nothing to do with the supply or demand value of a share.
An important example that how a share price is calculated is that when one says that the Infosys price is 2850 rupees then it means that the determined price has not been manually selected. Because the determined prices of the shares in stock are completely automatic. The prices are decided by making a match of the bids and offers that is preceded electronically. The prices are always software driven. So, the prices are always calculated when they are recorded on ELOB that is Electronic Limit Order Book.
There are two words that every person who aspires to work in stock exchange, should know, are “bid” and “ask”. When one places an order for purchase of a share at a specific price that is called bid, the same way when a person places an order to sell the specific shares is called the “ask”.
The Electronic Limit Order Book has all the details about bids and asks of every share. The electronic system then brings out the matches for execution of the orders carrying best asks and bids. The Last Traded Prices of the shares are shown on the television screens in the exchange. LTP is a price on which a trade or transaction has been performed for a share.
Stock exchange works in a quite different way. There will be no execution of any transaction if the highest price by the buyer to pay is lower than the lowest price of the seller to sell. Despite this, if any customer comes in to purchase the shares and places an order of 3000 shares then the order will surely be fulfilled. But the first 2000 shares will be available on price of Rs. 4.00 and other 1000 shares will be available on price of Rs. 4.05.
The exchange always provides you with the best price for shares, does not matter either you are a seller or purchaser. But one thing is for certain i.e. if a person places an order with limits then the trade would not take place unless there is someone on the other side to match your order requirements.
If we speak about the high level price determination in exchange, the bids and asks that are matched to determine prices at the stocks depends on the volume. But this is for sure that there are some complexities are involved in the exchange for price calculation but all the intricacies cannot be completely explained here. But above mentioned is the standard procedure for calculation of the shares value.