Why Stocks Fluctuate
The stock market is a popular venue for many investors. Though the stock market can present an exciting and appealing way to grow investment money, the seemingly unpredictable price fluctuations can make it a risky place for a beginning investor. Understanding stock market prices and the reasons for stock price fluctuations can help an investor make choices that maximize the return on their stock market investments.
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Identification
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The stock market is an all-encompassing name for the physical and electronic venues used to trade stock. Companies offer stock for sale when they want to increase the amount of money the company has for growing and improving the company and its business. To do this, they offer shares of stock, which amount to small pieces of ownership in the company. Some of the largest stock markets include the New York Stock Exchange (NYSE) and NASDAQ.
Features
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The price of stock goes up and down depending on demand for the stock. Buyers and sellers negotiate from their desired price points to decide on the sales price for the stock. Essentially, the stock market is a large auction in which buyers and sellers make agreements to trade in stock. When occurrences like company changes, product breakthroughs or natural disasters affect company business, creating a fluctuating stock price.
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Stock Price Types
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In the stock market, shares of stock have more than one price used to determine the market price. The current price of the stock is determined using the bid and ask prices for the stock. The bid price is the price that the buying investor is willing to pay for the stock, while the ask or offer price is the price at which the owner of the stock is willing to sell. In most stock trades, brokers take a commission for executing the trade.
Theories/Speculation
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Factors which are thought to influence stock price changes include company reputation, company earnings and the sales activity of stockholders with large amounts of stock. A company that earns less than expected in a certain period of time may see a drop in its stock; likewise, a company that does better than expected in recorded earnings might see an increase in the price of its stock shares. According to Brigham Young University, when an investor trades a large number of one company's shares, it can affect the price of the stock without indicating any changes in the health of the company.
After-Hours Trading
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The New York Stock Exchange and NASDAQ stock markets are open from 9:30 a.m. to 4:00 p.m. Eastern standard time (EST), according to the Securities and Exchange Commission. Even after the stock market has closed trading, the price can change before the market opens back up again. This is because after-hours trades and other nightly adjustments are taken into account when setting the opening price for the following day's stock exchange market.
Commission Considerations
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Usually, commission is paid both when stock is bought and when stock is sold by an investor. The market price quoted for the stock does not include the commission taken by the broker, but the cost of commission needs to be taken into account when considering profits and losses in the stock market. Commission differences among brokers can create varying costs for the investor.
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References
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