This is an interesting question. We see all the time that the prices of stocks keep changing in stock market trading – but what is it that makes them change? Actually there are many factors that play a role here and it can become quite complicated.

The Role Of Demand And Supply

This is at the basic of economics. There is always a tussle going on between demand and supply in economics, and as a law, when the demand for something (stocks in this case) is high, and the supply remains constant, the price is bound to go up. Let us take an instant to understand this better in the context of stock market trading.

Let us assume that we have a company here by the name of XYZ Communications and that the company has 100,000 stocks in the market. Now for some reason there is a great deal of demand for their stocks (perhaps the company’s financial results have been great, or perhaps the company has just bagged a huge order), and almost everyone is looking to buy their stocks. Now since the number of stocks remains a constant, the price soars because there are some investors who are willing to buy it at a high premium.

However it needs to be mentioned here that the price movement of the stock may also be on account of the investors feeling about the worth of a company, and it may not match with the company’s true value.

Other Reasons That Affect The Price Of A Stock

There can be many other reasons as well such as…

• If the company is about to announce a dividend, this often leads to a hurry for buying the stock within the stipulated date.
• There may also be news in the market that the company is about to announce a stock split decision.
• There may be something great happening in the industry – at least as per the market perception. For example when the dotcom bubble happened, the stock prices of a huge number of technology companies soared and many of them never made any profits.
• A Govt. decision (perhaps a policy change) can also both positively or negatively impact the prices.
• News that some other company is trying to acquire the stocks of a particular company to take that over. This often leads to an increase if the new company is bugger and has better financial results.

However it needs to be noted here that in many cases, the stock prices can soar or collapse purely on rumor and this makes the changes that much more interesting.

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