What is share in share market or stock market, why the share price moves up and down?
What is a Share in the Stock Market?
By purchasing a share, you become a partial owner of that company. For example, if a company has 1,000 shares and you own 10 of them, you own 1% of the company.
Shares come with certain benefits, such as:
Capital Gains: If the share price increases, you can sell it at a higher price to earn a profit.
Dividends: Some companies share their profits with shareholders in the form of dividends.
Voting Rights: As a shareholder, you may have the right to vote on key company decisions.
Types of Shares
Shares are broadly categorized into two types:
Common Shares:
Most people invest in common shares. They offer voting rights and potential dividends. However, dividends are not guaranteed and depend on the company’s profitability.
Preferred Shares:
These offer fixed dividends and have a higher claim on the company’s assets if it goes bankrupt. Preferred shareholders usually don’t have voting rights.
Why Do Share Prices Move Up and Down?
Share prices are influenced by the forces of supply and demand. When more people want to buy a share than sell it, the price goes up. Conversely, when more people want to sell than buy, the price goes down.
But what drives this demand and supply? Let’s explore the key factors:
1. Company Performance: The financial health of a company plays a significant role in determining its share price.
Positive News: High profits, successful product launches, or expansion plans can attract investors, increasing demand for the shares and pushing prices up.
Negative News: Losses, scandals, or poor business decisions can lead to a drop in demand, causing the share price to fall.
2. Economic Factors: The broader economic environment also impacts share prices.
Economic Growth: In a booming economy, companies usually perform well, boosting investor confidence and share prices.
Recession: During economic downturns, uncertainty can lead to falling share prices.
Other economic factors include:
Interest Rates: Higher interest rates can make borrowing expensive for companies, which may lower their profitability and share prices.
Inflation: Rising costs can affect a company's earnings and, consequently, its share price.
3. Market Sentiment: Sometimes, emotions and perceptions drive the market more than logic.
Bull Market: When investors are optimistic, share prices generally rise.
Bear Market: When pessimism dominates, share prices often fall.
News, rumors, or global events like wars and pandemics can significantly influence market sentiment.
4. Industry Trends: Shares in specific industries may rise or fall depending on trends. For example: Tech companies may see a surge in share prices during technological booms. Oil company shares may drop if renewable energy gains popularity.
5. Supply and Demand: The availability of shares also affects their price.
Limited Supply: If a company has fewer shares available and demand is high, prices will rise.
Excess Supply: If many shares are available but demand is low, prices will fall.
6. Global Events: External factors like geopolitical tensions, natural disasters, or changes in government policies can affect share prices.
For instance: A trade war might hurt a company reliant on exports, reducing its share price. A favorable policy could boost a company’s prospects, increasing demand for its shares.
Why Share Price Movement Matters
Understanding why share prices move helps investors make better decisions. For example:
If you notice a company consistently performing well, its shares might be a good long-term investment. On the other hand, sudden price drops might be an opportunity to buy shares at a discount—if the company’s fundamentals remain strong.
Conclusion
Shares are the building blocks of the stock market, representing ownership in a company. Their prices fluctuate due to a combination of company performance, economic conditions, market sentiment, and global events. For beginners, the key is to focus on the basics. Research companies, stay informed about the market, and avoid making emotional decisions. Over time, with patience and practice, you’ll learn to navigate the ups and downs of the stock market confidently.
Happy investing!
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