How do Stock Prices Change?
When you buy stocks, you have two ways to make money. You can make money through dividends that the company pays for each share you own. For example, they might pay 25 cents per share each quarter. Dividends are not guaranteed, though.
You can also earn a profit through capital gain. When you buy stock, you will pay a certain price. If in the future the price goes up, and this is what you want it to do, you can sell it and make a profit. Subtract what you paid for what you sold it for and this is your capital gain.
Investors are usually hoping to make capital gains when they buy shares of stock. People who are in or nearing retirement may prefer high dividend paying stocks that are stable for a source of income, but for others, dividends aren’t where they expect to make most of the money.
In order to make capital gains, the stock price has to go up. The stock price can go up or down. It varies from day to day. How can you know it will go up and how exactly does it change?
The price of stocks goes up and down the same way that the price of anything else goes up and down. It is an economic principle of supply and demand. Maybe you remember that from your economic class.
It’s all based on whether supply and/or demand go up or down and buy how much. An increase in supply will lower the price whereas an increase in demand will increase the price.
Stock prices change depending on who is willing to buy and sell. If more people want to buy a particular stock than there are enough people to sell it to them, they have to increase the price. If more people want to sell a particular stock than there are enough people to buy from them, they have to drop the price.
If you understand how this works, you can better understand how to make money with stocks. You want to buy stocks that you think a lot of people will be buying in the future so that the price goes up.
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