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How Do Prices Move?

By News Canvass | Nov 12, 2021

How Do Prices Move In Equity Markets?

The majority of people are aware that market prices fluctuate as a result of buying and selling, but few are aware of how buying and selling moves the market prices. Every market has two prices: a bid price and an ask price, whether it’s a stock, currency, futures, or options market. The “offer” price by the seller is also known as the “ask” price and the price at which the buyer is willing to buy is known as the “bid” price.

Speed Of Movement

Transactions can move at a breakneck speed. People are bidding and offering at various prices and in various quantities, and they have the ability to cancel or amend their orders at any time, causing the bid and request to shift. Other traders are merely trading among the bids and offers that are currently available, rather than submitting bids or offers. Depending on how aggressive buyers and sellers are, prices might change swiftly or slowly. If someone issues a large market buy/sell order, the price can shift very quickly. Until the order is filled, a market order buys or sells every share, regardless of price. As a result of such orders, all nearby bids or offers may be removed, causing the price to fluctuate dramatically and rapidly. Other times, the price moves slowly because there are few transactions or because there are so many shares available at each bid or offer that moving the price is difficult, even when there are numerous transactions.

What Causes Stock Prices To Change?

Market forces influence stock values on a daily basis. This means that stock prices fluctuate due to supply and demand. When there are more people who want to buy a stock (demand) than there are those who want to sell it (supply), the price rises. If more individuals wanted to sell a stock than acquire it, the supply would exceed the demand, and the price would fall.

It’s simple to understand supply and demand. What’s more difficult to understand is what makes individuals like one stock and dislike another. It all boils down to determining what news is good for a corporation and what news is bad.

Concept Of Bull & Bear

The names “bull” and “bear” are widely used in the investment sector to describe market circumstances. These phrases characterise the general performance of stock markets, such as whether they are increasing or decreasing in value. As an investor, the market’s direction is a major force that has a significant impact on your portfolio. And it’s critical to comprehend how each of these market conditions could affect your investments.

Bull Market

A bull market is one in which prices are rising and economic conditions are generally positive. A bear market develops when the economy is weakening and the majority of stocks are losing value. Because investor attitudes have such a strong influence on the financial markets, the phrases also refer to how investors feel about the market. A prolonged increase in prices characterises a bull market. A bull market in equities markets refers to a rise in the price of a company’s stock. During these periods, investors frequently believe that the uptrend will continue in the long run. The country’s economy is normally strong in this scenario, and job levels are high.

(The term bull initially referred to a speculative purchase made in the hope of rising stock prices; it was later used to the individual who made such purchases.)

Bear Market

The term “bear market” refers to a market that is in decline. Unless a market has lost 20% or more from recent highs, it is usually regarded as a true “bear” market. Share prices are constantly falling in a bear market. As a result, investors assume the downward trend will continue, perpetuating the downward spiral. During a bear market, the economy slows down and unemployment grows as businesses cut staff.

(A bear is a person who sells securities or commodities expecting a price decline.)

bull vs bear

Bull v/s Bears

It’s vital to remember that a bull market is marked by a general sense of optimism and positive growth, both of which tend to fuel greed. A bear market is coupled with a general sense of deterioration, which causes stockholders to be fearful. When it comes to bull vs bear markets, investors act in the other direction of the investing public, capitalizing on their emotions by finding great stocks at low prices during bad markets and selling during bull markets when they’ve regained their worth.

Investing In Bull and Bear Markets

Because there are so many changes between bull and down markets, how you make financial decisions differs significantly. In a bull market, having a bigger equity allocation is ideal since the potential for higher returns is greater. Buying stocks early and selling them before they reach their peak is one strategy to profit from a bull market’s rising values. Investing in equities in a bear market, when there is a greater risk of loss, should be done with caution, since you are likely to lose money, at least initially. It’s a good idea to put your money into fixed-income securities if you’re anticipating a bear market.

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