What Causes Stock Market Prices To Vary?

Posted by Traders Gurukul on October 27th, 2021

Stock prices change every day under the pressure of market forces, i.e., according to supply and demand. Suppose more people want to buy a security (demand) than sell it (offer), the price increases. On the contrary, if the number of people looking to sell that security is greater than the number of people prepared to buy it, the supply is greater than the demand, and the price goes down.

The law of demand and supply is easy to grasp. What is more difficult to understand is why people want to buy or sell a particular security? It comes down to determining what constitutes good news or bad news for a business. The answers to this question are plentiful, as every investor has unique investment ideas and strategies.

The value of the company

The leading theory is that the movement of market prices indicates the value that investors place on a company. However, one should not confuse the value of a company and the cost of its share.

The company\'s value is its market capitalization, which is the share price multiplied by the number of shares outstanding. So a company that issued 1,000 shares at INR 100 (INR 100,000) has a higher market capitalization than one that has 100 shares at INR 500 (INR 50,000).

To complicate matters further, the stock price reflects the current value of the company and the growth expected by investors. And companies like to hire trained professionals who have in-depth knowledge of the stock market so, one must do stock market courses to become an expert.

The benefit of the company

The most crucial factor influencing the value of a business is its profit. Companies with outstanding shares (public companies) must report their earnings four times per year (quarterly).

The stock markets are paying extreme attention to these quarterly statements, as analysts base the future value of companies on a projection of earnings. If a company\'s results are more immeasurable than expected, its stock price jumps. If they are lower than expected, the price drops.

And all the rest

Profit is not the only factor that can change investor sentiment towards a stock. If this were the case, the world of the Stock Exchange would be simple!

Investors have developed hundreds of variables, ratios, and indicators literally to try to measure stock market trends. Like the price/earnings ratio (P / E), some are simple, while others are incredibly complex (Chaikin oscillator convergence/divergence of moving averages, for example).

Some analysts believe that it is possible to predict where prices will go. Others believe that by plotting graphs and looking at past price movements, one can determine the best time to buy or sell. The only sure thing is that stocks are volatile, and their price can change extremely quickly.

The stock market is also sensitive to global news. Significant events such as the explosion of BP\'s platform in the Gulf of Mexico in 2010, the 2011 earthquake in Japan, and the public debt crisis in Greece have had a significant impact on stock prices. The variation in the cost of raw materials, the publication of employment and industrial production statistics also has implications because they are indicators of the economy\'s health.

To understand in-depth about the stock market it is recommended for a person to do stock market courses.