The Motivating Forces behind Stock Prices

If you are getting started in the stock market, trying to understand stock prices can be confusing. One moment they will be moving upwards and the next moment they will be plummeting like a rock. In order to be successful in the stock market, you need to understand the basics behind fluctuating stock prices. Here are some of the motivating forces behind stock prices.

Fundamentals

One of the biggest factors in the price of a stock is the fundamentals of the company that is behind the security. Since stock represents a portion of ownership in a company, it only makes sense that the price of the stock would be influenced by the performance of that company. Whenever a company releases financial statements, investors look for clues that can tell them something about the value of a stock. Ultimately, they want to determine how much money is going to be generated per share in the market. 

Financial analysts will look at a number of different things when financial statements are released. They are going to look at the earnings, the debt situation, and the assets of the company. There are many different ways that stock analysts value companies. Because of this, there are a lot of different opinions as to whether a stock is on the rise or on the decline.

News Announcements

Something else that regularly influences stock prices is news announcements. Many investors constantly watch financial news in order to keep up-to-date on recent happenings in the market. Whenever a company has some type of significant news release, the stock price will usually be affected drastically. If the news is good, the price of the stock is going to increase. If the news is bad, investors are going to be trying to sell off their shares and the price is going to plummet.

Supply and Demand

Supply and demand also plays a vital role in the pricing of stocks. If there are more investors that want to purchase a particular stock than there are shares available in the market place, the price of a stock is going to increase. If there are more sellers in the market place than there are buyers, the price of the stock is going to decrease.

Market Sentiment

The stock market is basically a place where buyers and sellers can get together to trade stocks. Because of this, a large portion of stock price in a company is determined by the sentiment of the investors. Regardless of what the facts about a company say, investors are going to have their own opinions. The price of a stock is determined by what someone is willing to pay for it. Sellers are always going to want to sell their stock for the highest price possible. Buyers are always going to want to buy stock for the lowest price on the market. The actual price of the stock will fall somewhere in between.

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