How Stock Prices Change

If you’re new to stock trading, you’ll notice that the prices of each publicly-listed company share of stock changes frequently within a trading day. This happens because the price follows the law of supply and demand. If there’s a great demand for a particular company’s shares of stock, the price will definitely go up. If there’s less demand and a lot of stock investors want to dispose their shares, the price will definitely go down. This phenomenon is quite easy to understand. What’s hard to understand is what pushes stock investors to buy or sell a particular company’s shares of stock. 

Why Stock Investors Opt To Buy or Sell a Share of Stock

In general, a stock trader decides to buy or sell a company’s share of stock based on his perception of how much the company is worth. The stock price is just the perceived price and doesn’t equate to the value of the publicly listed company. It is also dependent on what stock investors think of the company’s value in the future. 

This being the case, stock traders waits for news regarding a company’s earnings. If the company doesn’t earn as expected, stock investors may opt to sell their shares of stock. When more stock investors dispose of their shares, it is expected for the company’s stock price to fall. However, if the actual earnings exceed expectations, more stock investors will want to buy the company’s shares of stock. The stock price will rise when there’s more demand than supply. 

However, the company’s earnings aren’t the only factor which determines how the stock price will change. There are various other reasons and some of them can be very trivial in nature. The unpredictability of the stock market can’t really be summed up in just a few factors. Nobody can really pinpoint, for sure, what causes the stock price to move. 

But, there are some things which stock investors must fully understand in order to make successful stock market trades. First, the law of supply and demand determines the movement of the stock price. Second, comparing the stock price of 2 companies to determine which is better is wrong. The company’s value is computed by multiplying the stock price with the outstanding shares. Third, stock investors consider the company’s earnings in their decision to buy or sell its shares of stock. The stock price is affected by the stock investors’ expectations, attitudes, and sentiments.