In this article, we will explore why does a company’s stock price change every day?
The price of any product in the world is determined by one basic economic principle:
the law of supply and demand.
The stock market also works on the same principle. Stock prices are decided based on supply and demand, but many factors influence this balance.
Let us first understand what the Supply and Demand rule is.
What Is the Law of Supply and Demand?
Supply and demand explain how prices move in any market, including the stock market.
- When demand for a product increases and supply is limited, prices rise.
- When demand is low and supply is high, prices fall.
- For better understanding I will give 2 examples.
Example 1: Agricultural Seeds
At the time of sowing, farmers need seeds, but supply is limited. Because demand is high and
supply is low, seed prices increase.
After harvest, when seeds are widely available in the market, supply increases and prices fall.
Example 2: Gas and Oil Prices
When oil supply is limited due to geopolitical tensions, refinery shutdowns, or hurricanes,
gas prices increase.
When oil production increases or demand falls, gas prices decrease.
Just like gas prices change daily, stock prices also fluctuate based on changing supply and demand.
How Supply and Demand Affect Stock Prices
When a company is profitable, more investors want to invest in it. This increases demand
for the stock, and the share price rises.
On the other hand, when a company reports losses, investors may sell their shares.
Demand decreases, supply increases, and the stock price falls.
Major Factors That Influence Stock Prices
1. Government Budget Announcements
When the government announces its budget, positive policies or incentives can boost
the share prices of related companies. Negative announcements can cause stock prices to decline.
2. Election Periods
During election periods, if a political party is viewed positively and election results favor
that party, it can strongly impact the stock market. Markets often rise when political stability
is expected.
3. International and Global Events
Global events such as geopolitical tensions, conflicts, or potential wars increase uncertainty.
During such times, stock markets often turn bearish.
4. Reduction in Promoter or Insider Holdings
When promoters or major insiders reduce their stake in a company, investors may see it as
a lack of confidence. Increased selling raises supply and can push stock prices down.
5. Corporate Scandals or Management Issues
If a company becomes involved in corporate scandals such as insider trading or financial
misconduct, investor trust declines, often causing a sharp fall in the stock price.
Conclusion
In summary, stock price movements are the result of continuously changing supply and demand,
driven by economic conditions, political events, global developments, and company-specific news.
Understanding these factors helps investors and traders make better decisions.
Disclaimer
This content is for educational purposes only and does not constitute financial advice.
Stock market investments are subject to market risks. Please consult a qualified financial
advisor before investing.