If you have ever looked at the stock market, you see prices constantly going up and down, sometimes within seconds.
A stock may be trading at ₹100 in the morning and ₹110 by the afternoon.
But what makes a stock price rise or fall? Who sets the price? And why does it fluctuate so fast?
This simple guide explains how stock market prices are determined in an easy-to-understand way.
The Simple Answer: Supply and Demand
At its root, stock prices are determined by supply and demand — just like anything else bought and sold in a market.
More people want to buy a stock → Price goes up
More people want to sell a stock → Price goes down
This is the same reason gold, petrol, or vegetables rise in price when demand increases.
But what makes people want to buy or sell?
Investors buy or sell based on what they believe the company’s future will look like. When they think something good or bad is going to happen, prices move accordingly.
Let’s break down the major factors.
1. Company Performance (Earnings)
A company’s financial health is one of the biggest drivers of its stock price.
Investors look at:
- Revenue (money the company makes)
- Profit
- Growth rate
- Expenses
- Future plans
Good earnings → more buyers → price increases
Poor earnings → more sellers → price drops
Example:
If Apple reports higher-than-expected profits, investors rush to buy because they expect the company to grow → the stock price rises.
2. News and Announcements
News — good or bad — quickly affects stock prices.
Positive news:
- New product launch
- Expansion into a new country
- Partnership with a big brand
- A new CEO with strong experience
These attract buyers → price goes up.
Negative news:
- Lawsuits
- Layoffs
- Scandals
- Failed product launch
- Falling sales
These scare investors → they sell → price goes down.
3. Industry Trends
Sometimes stock prices move because the entire industry is affected.
Examples:
- Oil stocks rise when oil prices increase.
- Tech stocks rise when AI, cloud, or new tech trends grow.
- Travel and airline stocks fall during pandemics.
Investors always look at the bigger picture.
4. Market Sentiment (Investor Emotions)
Stock prices don’t always move logically — emotions play a big role.
Common emotions that move markets:
- Fear
- Greed
- Excitement
- Panic
- Confidence
- Rumors
This is why prices may rise even without a reason or fall even when nothing bad happens.
Example:
If investors feel the economy is improving, prices rise.
If they fear a recession, prices fall.
5. Economic Indicators
The overall economy also affects stock prices.
Important indicators:
- Inflation rate
- Interest rates
- GDP growth
- Unemployment rate
- Government policies
- Budget announcements
Example:
Higher interest rates make loans expensive → companies spend less → stock prices decline.
6. Supply of Shares (Number of Shares Available)
Some companies have fewer publicly traded shares (called low float).
Low supply + high demand → prices rise quickly
Example:
Small companies with limited shares often see huge price swings because even small buying pressure can push prices up.
7. Big Investors and Institutional Trading
Large investors such as mutual funds, hedge funds, and foreign institutions can move stock prices significantly because they trade in huge volumes.
Even a small change in their buying or selling activity can push prices up or down rapidly.
8. Global Events and Geopolitics
International news can also drive stock prices:
- Wars
- Elections
- Trade bans
- Currency fluctuations
- Natural disasters
Example:
A war in a country where oil is produced may raise the prices of oil and eventually affect all the energy stocks around the world.
How Stock Prices Change Throughout the Day
Stock prices shift each second because:
- New trades are constantly taking place.
- Both buyers and sellers continuously update their prices.
- News breaks at any moment.
- Market sentiment shifts quickly.
That’s why you see the prices changing in real time on trading apps.
What is the “Market Price”?
The market price is the price at which the most recent trade took place.
It is not decided by:
- The company
- The stock exchange
- The government
It is decided by the ongoing agreement between buyers and sellers.
Understanding the Bid and Ask Price
Two important terms determine the price:
- Bid Price → the highest price which a buyer is ready to pay
- Ask Price → the lowest price the seller is willing to accept
A trade occurs when:
Bid price = Ask price
Where they meet is where the market price is formed.
Why Stock Prices Don’t Always Reflect a Company’s Actual Value
Sometimes, a company may be doing great, yet the stock price stays flat.
Sometimes, a company may be weak, and the price of its stock rises.
Why?
Because stock prices are based upon expectations, not just reality.
If investors expect future growth, they buy.
If they expect slower growth, they sell, even if the company is doing well today.
Simple Example for Understanding Stock Price Movement
Imagine a company called XYZ.
Morning:
100 people want to buy
50 people want to sell
Demand > supply → Price increases
Afternoon:
A negative news article comes out.
Suddenly, 200 people want to sell
Supply > demand → Price falls
Evening:
Company announces a big new client
Buyers return
Price rises again
That is how prices move all day.
Final Thoughts
Stock prices are never set; they are constantly being adjusted to reflect the market’s expectations, feelings, demands, supplies, and even global events.
In other words, stock prices change because people change their minds.
Once you understand this simple concept, you will be a wiser and more confident investor.
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