Major factors that can affect prices of stocks in the market

Posted by Ayesha Jaiswal on August 18th, 2017

Stock markets are volatile, and the reasons behind the stocks rise and fall can be complex, we can not give an accurate information about the market movement. Stock prices are affected by a number of factors and events, some of which create an impact on stock prices directly and various another factors that do so indirectly. If a trader is new, it is better to refer stock tips to take the right decision at the time of sudden changes in stock price.

Following are the main reasons that influence a stock price

1. Government policies -

Governments hold its strong position in the free markets and have an intense effect on the financial market place. By increasing and decreasing interest rates, the government effectively slow or speed up growth within the country, this is called monetary policy. If government spending increases, fiscal policy is used to adjust spending levels in a nation's economy.

2. Level of foreign investment-

In recent times, the level of FDI (foreign direct investment) has played a significant role in influencing prices of stocks. If the value of foreign direct investment increases then automatically the stock prices increase similarly if the level of foreign investment would decreases then the markets fall.

3. Changes in economic policy -

If the new government come into their existence, they may launch new policies, new rules and regulation in the market; this will affect the price. Sometimes these changes can be good or sometimes it may be bad for the people. This may lead to change in interest rate so it may affect stock prices.

4. Company's performance-

A company's performance, their earning play an important role in the market and can affect equally on the stock prices. Changes in management, dividend announcement, earning and expenditure of company, accounting errors are the main factor that defined a company's overall performance and growth.

5. Market trends can affect investor's mindset -

Market trends mean the movement of the market which is mainly two types Bull Market and another one is the bear market. An investor makes his mind to buy and sell a stock after considering these market trends.

1. Bull Market – It is a strong market where stock prices are rising it will increase investor's confident to trade. It is a sign of economic growth, recovery as well as it also develops a trader mindset to invest more in the market.

2. Bear market – It is a weak market where stock prices are falling continuing it is just opposite to bull market. It often happens when there is a recession in the economy, the unemployment rate is high and prices are increasing rapidly.

6. Demand and supply -

It is an important factor affecting prices of stocks. Demand and supply of securities also influence the price of stocks. If the demand for securities is more than the supply, prices of securities increase. On the other side, if the demand of securities is less than the supply, prices of securities decrease.