HOW STOCK PRICE CHANGES?
Stock price changes on the regular basis according to the market’s activity. Buyers and sellers cause prices to change, and therefore share prices change as a consequence of supply and demand. And this occurs between buyers and sellers, supply and demand that decides how valuable each share is. If more people want to buy a share than sell it, the price goes up. Conversely, if more people want to sell a share than buy it, there’s more supply (sellers) than demand (buyers), and the price goes down.
Each share represent ownership in a company. So even if you own just one single share of a company, you are a part of it no matter how long. Therefore, the price of a share indicates what investors feel about the reputation or worth of the company. Stock prices can stay stable for months or fluctuate wildly, which is referred to as volatility. There are hundreds of variables that drive stock prices, but the most important one is earnings. Attributable earnings can be described as the profit of a company after taxes and all other deductions. There is often the misconception, especially with beginners, that a share that has risen will always fall, or a share that has fallen will always rise. Vice-versa, there’s also the misconception that a share that has risen will always continue to rise. This is not the case though! Stock prices reflect the interest of investors, not the law of gravity! However, no market operates in a vacuum.
In a borderless and interconnected world like the stock market, the slightest rumor or threat of war, rising oil prices or interest rate hikes for instance, can detonate a reaction on world markets which then react speedy and unpredictable. To make matters worse, markets also react to less alarming news and events like a slip of the tongue. One wrong word said by mistake by an analyst or politician can cause a chain reaction and panic, sending the markets into red territory. But whichever way the wind blows, prices can rise as quickly as they fell, especially after someone’s blunder saying the wrong thing. Once investors come to their senses again, the stock markets can even begin to rise the same day again.
We can diversify the risk of stock price changes by investing in different portfolio to minimize the risk and can maximize our profits.
We may not be able to predict the forces that cause the markets to change either up or down, but by analyzing and understanding them, we will be better equipped to weather the lows and wait for the tide of fortune to turn. It can definitely be said, though, that it's important to always assess a company on its fundamentals. In the long term, good, solid and strong companies with good fundamentals usually return to their real value and strength, ironing out speculations based on rumors and inside trading.
There are following reasons that affect the stock price to change, these are:
- Price speculation or inside trading
- Major Financial news
- The market risk that can not be diversified
- Natural risk affect
- Investor's reaction to company Financial statement.
Due to above reasons, the expected price of stock can be changed.
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