Share prices fluctuate continuously. Especially in the short term, price movements are unpredictable and impossible to keep track of. But why is it that share prices are constantly rising and falling? What causes these fluctuations? In this blog we explain it to you, do you immediately want to start doing research, then we advice you to start reading one of the big trading guides at C-TradeAlert.com
Why Do Shares Rise or Fall?
The price of a stock changes as a result of supply and demand. The market value of a share is the price at which supply and demand are equal. That may sound complicated, but it makes sense.
Imagine that you want to buy share X, but for no more than 10 euros. Someone else wants to sell their share X, but wants to get at least 15 euros for it. There will be no trading until the buyer is prepared to pay more or the seller is prepared to get back less for his share.
You decide that you think the share is worth more anyway and want to buy it for a maximum of €13. The seller lowers his price to €13 anyway, because otherwise he will not lose the share. Only then trading takes place: when the asking price and the offer price are equal.
How Is the Price Determined?
The mechanism of supply and demand determines the price of a share. So, in the example above, the last transaction of 13 euros is the new share price. This price remains until the next transaction takes place. For each transaction, supply and demand are brought together. This results in a new price for each transaction.
In the case of large and well-known shares such as Shell, Unilever or Apple, thousands of transactions take place every day. These transactions are carried out at lightning speed. The different prices therefore follow each other continuously. This ensures that the share price fluctuates throughout the day.
Causes of Rising or Falling Share Prices
But for what reason can supply and demand rise or fall? There are various reasons for this. We will discuss the most important possible causes below.
The price of shares is strongly linked to the general sentiment on the stock market. Investor confidence plays a major role in this. Always take care when doing research into all the different kinds of assets, for example, sentiment plays a very big role in CFD trading
Profit Expectation and Performance
Expressing a company’s profit forecast can also cause shares to rise or fall. Although past performance is no guarantee for the future, a company’s performance does influence the share price.