WHAT DRIVES THE STOCK MARKET PRICES

Deciding what stocks to invest in can be hard, especially when you do not understand how the stock market works. It is very easy to incur a loss when you invest blindly.  The stock market is quite flexible as the share prices change every now and then. They are influenced by changes in demand and supply. Knowing when to sell your shares and the people’s preference is what makes investing in stock market complicated. This is also, why many people are afraid of putting their money in the stock market. However, if you get ample knowledge on how the stock market works, you can make profit from the stock. There are many resources you can get online such as a stock trading blog or a stock market blog.

Stock market prices are controlled by demand and supply as aforementioned. When there are more people intending to buy shares as compared to those intending to sell theirs, then it is said that the demand is higher than supply. This therefore leads to an increase in price. On the other hand, if there are more people willing to sell their shares than to buy them, the supply is considered to be more than the demand thus leading to a fall in price. Understanding how demand and supply work with respect to the stock market enables the shareholder to know when to sell for profits, when to buy more shares and when to hold the shares.

There are other factors that can determine the prices of stock include

  1. Performance of the company

The company’s performance plays a huge role in determining the stock prices. Company announcements and news also affect the stock prices. These announcements include the announcement of dividends, launching of new products, changes in management among others.  They affect the demand and supply of the stock.

  1. Investors’ sentiment

This is generally the attitude of the investor towards the stock market.  It is mostly in relation to confidence.  The investor confidence can cause the stock prices to fluctuate. There are basically two types of markets, the bull market where the stock prices are high therefore boosting investor confidence.

The bear market on the other hand is a weak market. Contrary to the bull market, the stock prices are low, thus investor confidence is shaken. This is mostly experienced during recession in the economy.

  1. Economic factors

There are various economic factors that affect prices of stock market. Here are some of the economic factors that affect the prices of stock

  • Bank rates – The bank interest rates greatly affect the prices of stock.

Companies need to borrow from money lending institutions for the purpose of expansion. High interest rates affect the cost of debt.  The company will have less profits and dividends paid to shareholders, resulting into a drop in share prices.

  • Inflation – It mainly affects the prices of shares when banks want to reduce inflation. A good example is when the bank rates are increased to reduce inflation, which reduces stock prices.

There are many sources of information like stock trading blog or a stock market blog.