Almost everybody understands the basic premise of investing, buy low and sell high. Investors buy stocks and hope to sell them for a profit after they move up in price. But why do stock prices change every second? if you have ever asked that question, then this article is for you.
Why Do Stock Prices Change Every Second?
In short, stock prices change because of supply and demand. Think of the stock market as one giant auction, with investors making bids for one or other stocks and offering to sell their own all at the same time. For example, Apple shares trade hands over 28 million times a day, which translates to nearly 1,200 accepted bids every second of every trading day. Because there’s a limited supply of shares available for sale, bidders must compete with one another to buy the shares.
The more intense the interest in a stock, the more bidders there are attracted to it, and the less interested current shareholders are in selling their own stock. As a result, potential buyers must bid higher to buy the stock, and the stock price moves that. This works the other way as well. When interest in stock declines, fewer competing bids are entered. Holders are more interested in selling their stocks, and the lower the winning bid price must be.
Also read: ITC share price target 2022, 2025, 2030.
But What Determines Investors Interest in a Stock?
In short, it’s information. Information comes in many forms, from earnings reports, press releases, news stories, court filings, tweets, general hype, etc. Investors, whether consciously or not, incorporate each new piece of information they come across into their impression of a stock.
Of course, every investor reacts to new information differently, and those reactions can range widely, from apathy to panic to euphoria. Depending on their reaction, investors may choose to buy more shares, hold the shares they have, or even sell. In turn, these reactions are incorporated into the share price, causing fluctuations in the price and causing the stock prices to change every second.
Interestingly, the change in the share price itself is information that is incorporated by subsequent bidders, and that cycle of information, reaction, price move, and information back into the system repeats once again.
When the supply of stock is limited and interest is high, a stock’s price can skyrocket and vice-versa. This cycle of supply and demand being repeated over and over again among millions of investors and stocks across the world each and every trading day, you will have a working idea of mechanisms that influence daily fluctuations in stock price.
As you can probably guess, investors’ reactions to new information aren’t always rational. As long-term investors, we look for opportunities to capitalize on the market’s short-term irrationality, to create long-term wealth.
This is all about why do stock prices change every second.
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