Lesson 01 · 4 min · 6 things to do
A price is the last trade
Read a quoted price as one transaction rather than a value.
A company's shares are quoted at £4.20. What does that number actually tell you?
- Yes.A quoted price is a historical record of one transaction. It says what two parties agreed a moment ago, not what all the shares are worth.
- Not quite.Multiplying it by the share count gives a widely used number, and the last trade was for a tiny slice. Trying to sell all of them at once would move the price.
- Not quite.The company owns buildings, contracts and people. The share price is what the last buyer paid for a claim on them, which is a different question.
A price is a record of an agreement that already happened. It is the newest fact on the screen and it is still the past.
You want to sell 100,000 shares. Slide to see how much you can sell at the quoted price.
50020,000100,000Quoted price£4.2What you actually got£4.2500Fills instantly at £4.20. The screen price was real for you.
Quoted price£4.2What you actually got£4.1120,000The nearest buyers are used up. The rest fills lower, down the queue.
Quoted price£4.2What you actually got£3.86100,000You have run out of willing buyers near the price. The last of it goes well below.
Why did the price you received fall as your order grew?
- Yes.Behind the quote is a queue of orders at falling prices. A large seller walks down that queue — which is why a valuation built on the quoted price overstates what a big holding could be sold for.
- Not quite.Nothing about the business changed while you sold. What changed is who was left willing to buy.
- Not quite.There is no punishment, only arithmetic: each buyer takes only as much as they wanted, at the price they wanted.
Move the control to see what changes.
A thinly traded share last changed hands three weeks ago at £11. What is its price today?
- Yes.With no trades there is no price — only the last one, ageing. This is why illiquid holdings look reassuringly stable right up until somebody has to sell one.
- Not quite.That is what the screen will show, and it is a stale record rather than a current price.
- Not quite.A model gives an estimate. It is a useful one, and it is not a price — nobody has agreed to it.
Which of these are facts about a market, and which about a business?
The share price fell 6% today.
The factory's output rose by a fifth.
Trading volume tripled.
A large customer did not renew.
The gap between buy and sell quotes widened.
Yes.Both matter, and they are answers to different questions. A day's coverage that mixes them lets a movement in the market read as news about the company.A company has 50 million shares. The last trade was 1,000 shares at £4.20. What percentage of the company was priced by that trade?
%Yes.1,000 ÷ 50,000,000. Two thousandths of one percent set the number that will be used to describe the whole company all day.A headline says a company "lost £2bn in value" after a share fall. What actually happened?
- Yes.No £2bn moved anywhere. Nobody received it, and unless somebody sold at both prices nobody lost it either — the figure is arithmetic on the newest quote.
- Not quite.The company's bank balance is untouched by its share price on the day.
- Not quite.On paper. It becomes real for anyone who sells at the new price, and vanishes for anyone who holds until it recovers.
Lesson complete
A price is a record of one trade, not a valuation of everything.
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