Stock market prices move up and down all the time. But why? The secret to understanding share price fluctuations is to know that the stock market is a pricing machine designed to match buyers with sellers. If there are more buyers than sellers for a stock, prices rise to tempt new sellers. If there are more sellers than buyers, prices fall to attract extra buyers.<\/p>
Of course, there are lots of different reasons why investors and traders might want to buy or sell shares. In this guide we’ll explain some of the common reasons why stock market prices rise and fall.<\/p>
Stock prices rise when demand for a share is greater than supply. This forces the stock market to raise the price to attract more sellers.<\/p>
One of the main reasons why buyer demand increases is when investors think the company’s performance is likely to improve. This could mean rising profits, faster sales growth or simply new management with big ambitions.<\/p>
Stock prices may also rise when the supply of stock is reduced. Sometimes a company will choose to buy its own shares to reduce supply and provide support for the share price. These share buybacks can also be used to help increase earnings per share.<\/p>
A more extreme example of a stock price rise is when one company agrees to take control of another by buying all of its shares. Takeover deals are usually agreed at a share price above the current market price. When a deal is announced, the stock price of the target company usually jumps higher to match the takeover price.<\/p>
Share prices fall when supply is greater than demand. When that happens, prices fall to attract more buyers, so that the sellers can complete their trades.<\/p>
One of the main reasons why a company’s stock price might fall is if its financial performance has disappointed investors. This usually means falling profits, but it might also mean that management have warned of tough times ahead.<\/p>
Another reason why prices fall is when a company issues a large number of new shares in a placing or rights issue. This allows the business to raise new money from investors. This isn’t always bad news, but it can be a sign a company is facing a cash crunch.<\/p>
The price of most stocks is based on the last completed trade (1). Most larger companies trade on an electronic market which automatically adjusts the price to match buyers and sellers. This means that each time a new trade is agreed, a company’s stock price can change.<\/p>
For big companies like Apple<\/a> or Tesco<\/a>, new trades go through every second. That means the price is constantly changing, although each change is usually quite small.<\/p> Shares in small companies don’t usually trade so often. Their stock prices may be based on completed trades or on the prices being offered by investors who want to buy or sell the stock.<\/p> Although stock prices are controlled by supply and demand, there are many reasons why investors might decide to buy or sell a share.<\/p> For example, if a company reports profits that are higher than expected, demand for the share might increase as buyers price in a sunny future. If a company’s performance is disappointing, sellers may push down the share price.<\/p> External news can also cause a stock price to change. For example, a major hurricane hitting the US coast could cause many millions of dollars of losses for insurance companies. The share prices of drinks firms in the UK fell when a new sugar tax on soft drinks was announced in 2016.<\/p> Predicting share price movements with certainty is impossible, but many investors have a tool kit they use to try and spot opportunities.<\/p> One of these tool kits is fundamental analysis. That means looking at a company’s financial performance and trying to estimate what the business is worth, and what will happen in the future.<\/p> Value investors like to buy shares in companies that look very cheap, in the hope they’ll rise. Growth investors often prefer to focus on companies that are expanding rapidly, even if their shares may look expensive today.<\/p> Technical traders take a completely different approach. They don’t pay much attention to fundamentals. Instead, they use charts and algorithms to look for patterns in share price movements and trading volumes. Traders aim to make profits by predicting share price movements based on statistical patterns.<\/p>What causes a stock price to change?<\/h3>
How can you tell if a stock price is going to fluctuate?<\/h3>
What is an example of a stock price fluctuating?<\/h3>