History

Till 17th centuries, people ran businesses with their own money.

When ideas become huge they couldn’t effort their own factories and land, so by lending money from common people. In 1602, The Dutch East India company becomes first to be listed in Amsterdam Stock Exchange.

Working

The basic concept of stock is that company divides its ownership into many parts and issues to the public at certain price through an IPO (entering into stock market) to rise their funds. As every share represents certain portion of ownership, the people who own shares experience profits if the company performs well, besides suffers loss if not.

So in stock market the factor of risk is always there. Over the long term, if the investor selects quality stocks with a strong fundamental backing, they are the best investment assets.

Supply and Demand

A stock’s price depends on many factors, the most basic of which is supply and demand. when a company performs well and posting much greater profits, so many investors show interest to part of that profit thus, the demand for that company shares increase there by increasing the share price. If a company has posted losses and debts are increasing the shareholders of that company show interest to sell their shares thus the demand for that shares fall there by decreasing the share price.  

In simple if the demand for a particular company shares increases the price of the share also increases and if the supply of a particular company shares increases the price of the share decreases.

Other factors

Country economy

A country economy has significant effect on any company in that country.so indirectly economy plays its role in any of the company share price. If the overall economy is doing well then the stock markets runs with ease.

Fear factor

Fear and greed has its role in stock market. Most of the stock market crashes (recession) happened due to fear of majority investors. During covid-19 the stock market crashed because most of the investors feared that this pandemic will affect the stock market and sold their shares thereby increasing the supply and the indices fall significantly.  

Geopolitical Tensions

If there is a tension between any two countries the entire world markets will show there response on this issue. If it’s a positive one then the markets show positive response and if negative one then the markets show negative response. in 2020, the trade issues between USA and china affected entire world stock markets.

Large Investors (DIIs and FIIs)

If the large investor like Rakesh jhunjhunwala has a positive opinion and buys shares in large portion in a particular company then the common people show interest in that company thereby the share price increases. The foreign institutional investors (FIIs)  and domestic institutional investors (DIIs)  buys and sells shares in bulk so the price momentum of the share in some portion is in their hands also.

As said there are many factors affecting the share price of a company but in the long term (5 to 10 years) the company fundamentals decide the share prices.

1 Comment

Mandla Naresh · July 20, 2020 at 10:13 am

This is useful

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