Explaining with an example,
How does the Share Market works
Part-2....
Now, we come to the more interesting part.
A shareholder of a "Public" company ( not to be confused with govt. owned company) is free to sell his shares to anyone else. This is basically what happens in the share market (BSE, NSE, NYSE, etc.). People buy and sell shares of Hundreds of companies listed on the Share Market. The company is not involved in these transactions. If a company is doing well, people would love to be a part of it, thus the price of the share of the company would increase due to the rise in its demand. Mr. A who had bought 1 share of my company at Rs.100, now sells Mr. B at Rs.120. That 20 rupees is solely Mr. A's gain, and Mr. B has now 1 share of the company.
However, irrespective of the price at which people buy/sell shares in the Stock Market, the company would treat the price of each as Rs.100 only. That's the price at which it had Originally sold the shares in the public offering. And that price is called Face Value. The voting rights and dividends are based on the Face Value. The price at which people buy/sell shares in the stock market is known as Market Value.
The prices of the Share rises if the number of buyers are greater then the number of sellers, and the price of the share falls down when the number of sellers are more then the number of buyers.
So the prices vary with the rise and fall in the companies growth.
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