Stock Market Basics: What Makes Stock Prices Rise and Fall
The stock market is a mystery to many people. Stock is nothing but a piece of ownership of a company. Since companies need financial assistance for growth – they sell pieces of ownership of the company by means of stocks. Every individual unit of a stock is called a ‘share’.
If the company earns profits, it gives back the profits to its shareholders by means of dividends. The authority of a person in the company policies and decision-making is proportional to the number of shares he/she owns. Thus, this means a person who own 100% shares of a particular company is the owner of that company. People who own a sizable amount of shares in the company are allowed to be on the board of directors, who have a say in the company’s policies.
The company’s stock market prices are dependent on how well the company is doing in the market. The better the company’s position in the market – the higher is the number of people who are willing to invest in its stock market– and hence higher is the price of the shares. On the contrary, if a company is suffering severe losses and not faring well in the market – there would be fewer people who want a piece of ownership of that company – and hence lesser the prices of the shares.
Well in addition to this crude explanation, there are several other factors, which are instrumental in deciding the rise or fall of share prices. These factors are as follows:
- Investor participation: This refers to the number of investors who are interested in buying shares of the company or the number of investors who are already shareholders of the company.
- Gross earnings of the company: This refers to the success of the company in terms of its turnover and profit numbers.
- Company Image: This refers to the general image of the company in the market, with regards to its financial position, profits, and also its core values.
- General Market Sentiment: This refers to the general trends in the market, which can hamper or enhance the company’s position.
- Overall condition of the U.S. and world economies: The world economies including the US economy are all inter-dependent on each other in some way and hence, have an effect on the share pricing.