How are Stock Prices Decided Upon?
May 28, 2009 by Robbin Carols
Filed under Business
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.
The other way to make money is through capital gains. This means that you have bought the stock at one price and then sell it at a higher price. The difference between the price paid and the price sold is your capital gains.
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.
An increase in supply with the same demand will decrease the price. An increase in demand with the same supply increases the price. The price changes depending on whether and how supply and demand change.
With stocks, if a lot of people want to buy a particular stock and not enough people are selling, they will have to raise the price to accommodate for it. If there are more people looking to sell than people willing to buy, they will need to decrease the price to get people to buy.
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.
Qigong (2)