Stock prices change on a daily basis. In fact, they change every minute. If you are familiar with the stock market or you regularly follow stock market news, you have an idea about this. This is one of the reasons why investing in stocks is considered risky. The value of your shares can reduce or increase within minutes. It is very easy to make losses with stocks, at the same time; you can easily make profits out of your investments. Most wealthy people around the world can confirm that the riskier the investment, the higher the returns.
What is responsible for the constant change in prices of stocks?
The main reason for frequent fluctuations in stock prices is the market forces; demand and supply. Demand of stock is when there are many willing buyers compared to sellers. Supply on the other hand is when there are many shareholders willing to sell their shares compared to buyers. Demand and supply is influenced by the preference of the public. This is because more people will be willing to buy shares if they prefer a certain company and at the same time, more people will be willing to sell when the prices increase.
Stock prices are also affected by the general state of the economy. However, there are other factors that affect the prices. They are discussed below
- Company news
This includes release of earnings and the expected earnings in the future. Announcements of dividends also fall in this category. These announcements have an influence on the demand of the company’s stocks. A company with high profits and well paying dividends tends to attract more potential investors. This is because people get into stock market with the intention of making profit and therefore go where the money is.
- Industry performance
Some industries perform better than others. Companies within the same industry will have the prices of their stock move in the same way. The industry will generally have an increase in their stock price at the same time and vice versa is also true. However, a company may benefit from the failure or set back of one of their competitors within the industry. These setbacks are inclusive of scandals and bad news regarding the competitor.
There are other factors known as economic factors that affect the stock prices. These are
- Inflation – Inflation causes high prices of consumer goods, as a result, the sales reduce leading to a reduction in profits. In order to deduce inflation, bank rates are increased and as a result, stock prices reduce.
- Stability- This is in terms of political stability, which can cause shocks in the economy and therefore affect economic growth. The prices of stocks will reduce in places where there is fear of terror attacks.
Understanding the stock market comprehensively requires much time and effort. Thanks to the internet though, you can access stock market blogs that will provide you with the necessary information you may need. You can get information on some of the hot stocks to buy on these stock market blogs, which can be a good start when looking to invest in stock market. Knowing these hot stocks to buy will go a long way in helping you get profit from your investment.