When one sees a stock quote, especially when one possesses this stock, one always thinks that this price applies to its entire participation.
Besides, is it not on the basis of stock price that one calculates market valuation, in other words the price that would cost the purchase of all the shares of the company?
Yet, when stocks are traded on a low volume market, one is always struck by the impact that the smallest transaction of a few shares has on the market:
- The smallest purchase of shares raises the stock price sharply.
- The slightest sale of shares drastically lowers thestock price.
These phenomena demonstrate the weakness of the price displayed in other words the relativity of the solidity of the quote.
Hence, how to calculate it?
How can I determine at which trading volume the stock price will be affected?
In case of Purchase
In case of purchase of stocks, multiply the ask price by the volume of the offer. The result is the amount of money that would have to be invested to affect the stock price upwards.
In case of Sale
In case of sale of stocks, multiply the bid price by the volume of the demand. The result is the sum of money representing the total price of the stocks that would have to be sold to affect the stock price downwards.