What moves stock prices !!

When it comes to investing in stock markets we always wish to know how the stock prices would move once we lock a price and buy it. But if we study the factors surrounding the stock we can extrapolate with great accuracy the probable future movement.

Some of the factors contributing to stock price movement are as given below:

  1. People: The first and the most important factor that moves stock prices all the time are the people participating in the market. We often represent this factor as demand and supply in more technical terms.
    In the most simplest terms these are 2 groups of people sitting and watching the market ready to make a trade. A group of buyers looking at a lowest possible price and a group of sellers waiting to get the highest price to offer to sell their stocks and go back home with the money.Let us assume a very simple scenario with the two groups watching a stock XYZ currently being traded at Rs. 9.65 per stock. From the group of sellers lets say Mr. A is willing to sell his stock at a price of Rs. 10, another seller Mr. B also wishes to sell but wants a bit higher price of Rs. 10.50. We also have another seller Mr C who is in a hurry to sell and collect the money as he needs it for some reason, so he offers a lucrative offer of Rs. 9.80.On the other side we have buyers where Mr. X thinks the stock XYZ could go up in future and is willing to pay Rs. 9 per stock. Another buyer Mr. Y is willing to buy at Rs. 9.10 and we have Mr. Z who is very positive on the stock and could pay as high as Rs. 9.60. But still we could clearly see no trade takes place and stock price did not move from its last trade price.

    Now after couple of seconds Mr C who was in hurry to sell the stock lowers his price to sell at Rs. 9.70. When Mr. Z sees this offer price becomes tempted to get the stock as he was very positive. So he makes a trade at Rs 9.70. With this trade that took place now the stock price moves to Rs 9.70 from 9.65 which becomes the current stock price with a gain of Rs. 0.05 from last traded price. This whole process explained here do not take more than a couple seconds in most of the cases.

    This is how people decide and move stock price with each trade. Volume of buyers and sellers also play an important role in deciding the direction of price movement.

  2. Recent News: Latest news about the stock/company affects the stock price movement on a much frequent basis, but this is short lived and could reverse the impact with another opposite news coming out. Some of the good examples could be a company deciding to expand it’s business, making acquisitions or mergers, launching a new product, having management rivalries (recent examples could be Tata group), among many others.If we are investing for a longer term in a stock then not so big/serious company news won’t affect the stock returns much, but if we are not a long term investors then we should keep a close watch on all the latest news about a stock.
  3. Company financials: Company financials is yet another major factor that moves stock prices. Every quarter with the company’s financial results being declared people decide the future performance based on the current and make buy/sell decisions accordingly.
  4. Perception: People’s perception making trade in markets are the biggest factor making stock prices move. Perception is however made based on the above 2 factors: recent news and company financials.
  5. Macroeconomics: Another factor that moves stock prices are macroeconomics. This refers to the sector the stock belongs to and the nations economy as a whole. For example if a stock belongs to infrastructure sector and the sector in itself is booming up for a economy then there is high probability of the stock going up. On the other hand if a nations economy is under trouble or major impact then that definitely does not sound as a best time to invest until it gets stabilized.

By keeping a few things in mind and continuously observing changes in trends we can safeguard our investments, our hard earned money.

Happy investing !! :)

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