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Share Prices

Share prices increase and decrease as a response to news. This news can either be broad, as in the case of changing interest rates, or specific news pertaining to one company. No matter whether it is broad or specific, news influences the price of all shares traded in the stock market.

Also at the centre of stock markets are the basic economic concepts of supply and demand. The more people wanting to buy shares of a company, the higher the demand and the increase in the share price. This increase in demand drives the share price up as there is only a limited supply of stock available. Conversely, once the demand for the shares drop, the supply is increased and there is downward pressure on the share price.

The Internal Factors that can Influence the Demand and Supply of Shares

Among the internal factors that can influence the demand and supply of a company's shares are the attractiveness of the company itself, company news and announcements, as well as the performance of the overall sector that company is in. A listed company which shows consistent returns, good growth prospects and has good management will attract investors and in so doing increase the demand for its shares. In the same token, positive company announcements such as the company's profits doubling will also increase the share price.

Negative company announcements that portray the company or their key players in a bad light, whether it be exposing scam or revealing a drop in profits, will result in the share price plummeting. Another related factor would be the performance of the overall sector that company is in, e.g. retail, manufacturing, property etc. If any of these overall sectors are experiencing a major slump as a result of the current recession for example, it will create a snowball effect on most of the companies in that sector.

The External Factors that can Influence the Demand and Supply of Shares

Share prices could also be affected by external factors such as economic trends, globalization and Geo-political events. Economic trends like inflation and GDP could directly impact stock markets thereby affecting the underlying listed companies. Globalization has created more interconnected stock markets thus resulting in the performance of major overseas markets having an impact on local stock markets. Geo-political events, such as terrorist attacks could also cause share markets across the world to move up or down.

Unfortunately, there is no way to be absolutely sure that as investors you will be successful in buying low and selling high. It is however vitally important that you keep abreast of economic and political events happening throughout the world. By being proactive and aware of the factors that may have an impact your share prices you will increase the chances of preserving your wealth and becoming a successful stock market investor.