Everyone will agree that the stock prices frequently fluctuate. The prices increase and decrease in value. Sometimes, in a single trading day, the changes can be shocking. Consequently, many people wonder about the reasons why stock prices fluctuate.
Stock Market is an Auction
If you notice, the stock market is similar to an auction. In this market, one party sells its ownership, meanwhile, there is another party is willing to buy that ownership.
In an agreed price, then, there is a trade resulting in a new market quotation. The buyers and the sellers in this market can be government, institutions, individuals, corporations, or asset management companies that manage money for other people.
Since it works like an auction, then the price changes if the number of sellers and buyers is an imbalance. If we have more buyers than sellers, then the price goes upward. Consequently, the market quotation increases, making traders want to sell their shares.
Contrarily, if we have more sellers than buyers, then the prices heading south. The sellers will have the tendency to agree on selling their shares to the lowest bid. This can result in a problem. The perfect example of this is the collapse of 2007-2009 that happened because of companies like Lehman Brothers were forced to dump their shares.
The company does that due to the need of getting cash. The market, then, flooded with securities.
Also read: Reasons to Purchase Mid-Cap Stock
Factors Influencing Buyers and Sellers
There are days when the stock prices do not move a lot. You will only find the stock price move by one to two percent.
Mostly, traders make a purchase or sell their shares after they analyze the company’s balance sheet or the overall impression of the price of the company. Yet, sometimes, there are events that can significantly affect prices.
The example of that event is the earning report showing good or bad financial news. Some other times, the stock prices change based on the requisite percentage of money flow within the market at a certain period of time.
