Price: Definition, purpose, and facts

Glossary

What is a price?

The price is the value of an investment product or currency at a specific moment. The price is often expressed in money or percentages. Think, for example, of the price of a stock, bond or an ETF. It indicates how much an investment is currently worth and shows how the market values a product.

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Price vs. exchange rate

An exchange rate is always a price, but a price is not always an exchange rate. Let us explain. An exchange rate is the price of a currency expressed in another currency, for example €1 is $1.15. The term price is more general and refers to the value of an investment product or currency.

What is the purpose of a price?

The purpose of a price is to display the value of an investment product or currency at a specific moment, from the present moment to the past. It helps investors make decisions about buying or selling investment products. Additionally, the price offers insight into market conditions and economic trends, which is important for effective strategies.

How is a price determined?

The price is determined by the interaction of supply and demand on the stock exchange. When many people want to buy the same product, but the supply remains the same, the price rises. Does supply decrease, but demand remains the same? Then too, the price rises. When there is little demand, the price falls or supply increases. The opening price is the first price on a trading day and the closing price is the last price on that trading day.

5 factors that influence prices

Prices are constantly in motion. Values can change by the day, minute and even faster. There are various factors that can cause the value to rise or fall:

1. Company news: Everything related to the company can influence the price. Think of news about profits, losses, acquisitions or new products.
2. Economic figures: Factors such as interest rates, inflation and unemployment figures can cause the price to change.
3. Market sentiment: The mood of buyers and sellers can influence the price. Positive moods make the price rise, whilst negative moods cause a drop.
4. Geopolitical events: (Trade) wars, elections or other political events often lead to volatility in the markets.
5. Sector-specific developments: Technological innovations, rising commodity prices or changes in regulations can influence prices within a certain sector.

Capital gains

Capital gains (or price gains) are the profit you make thanks to the difference in purchase and selling price. In other words, you buy an investment product at a lower price and sell it for a higher price. This is the goal of many investors: benefiting from price increases.

An example of capital gains

Suppose you buy a stock for €50 and the price rises to €60. You then make a capital gain of €10 per stock. The capital gain is therefore the difference between the purchase price and the selling price, excluding any additional costs such as taxes or transaction fees.

How can you analyse the price?

Analysing prices is important for every investor. There are various ways to assess whether a price is favourable for an investment, namely:

1. A technical analysis;
2. A fundamental analysis;
3. Market information and news.

1. Technical analysis

With a technical analysis, you look at the chart of the price movement over a certain period. This helps you understand in which direction the price is likely to move and when it is best to invest.

2. Fundamental analysis

With a fundamental analysis, you look at the underlying factors of a company. These include profit figures, debts, growth potential and other financial data. Subsequently, you can determine whether an investment product is over- or undervalued.

3. Market information and news

Finally, it is important to stay up to date with the latest news and broader economic developments. This can help you understand prices better and respond faster to any changes.

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All views, opinions, and analyses in this article should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.