Why do stock prices rise and fall?
In: Economics
The prices are determined basically the same way any market goods are priced, by a process of supply and demand. If a lot of investors really want to buy this stock, then prices will go up, and if a lot of investors who have it really want to sell it, then prices will fall.
What makes them want to buy this stock or sell that one? Well, they’re trying to forecast the future and buy the stocks which are going to gain value in the future, and sell the stocks which are going to lose value in the future.
Of course, this is kind of a feedback system – people’s buying and selling decisions are based on their guesses about future price changes, and the price changes are themselves based on people’s buying and selling decisions. So everyone is trying to out-predict each other, and buy into a stock that’s going to rise before everyone else figures out that it’s going to rise.
If more people want to buy than sell, there is an increase in price until there is a balance between demand and supply and vice versa.
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