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The Stock Market – how does a stock price change?

stock market chartsA stock market crash is a sudden and dramatic decline of stock prices in the market. A crash usually results from mass panic. This normally occurs when people begin to hurriedly get rid of their stocks for a number of reasons such as, losing confidence in the market. A crash can also result from inflation and other underlying economic conditions and problems. A market crash can last several days or even months and has a very devastating effect on the economy. As in the case of every disaster or event, certain signs will always be there. It is therefore important for investors to be sensitive of these in order to prevent market crashes, which can take many years to recover from.

When investors are optimistic and speculative about a particular stock that is not doing well, they usually go and buy these stocks. Due to investors’ interest in this low trading stocks, more and more people start buying them. This causes the price of the stocks to go up, and they continue to rise as more investors buy them. The price bubble is very risky for any stock market.

Psychological attitudes of investors can also result in a stock price change. This happens when investors refuse to buy stocks whose prices have plummeted. The investors, for reasons of their own, choose to withdraw from the market. This causes a chain reaction in which other investors decide to sell out their stocks and pull out of the market without regard to the way the market will behave. When this happens, it results in prices going down dramatically and could result in a market crash.

Political instability or a change of government is another factor that can result in a stock price change. When investors are unsure about the future of a country, they will begin to pull out of the market. Foreign investors and other big investors are usually among the first ones to pull out. When this happens, all other investors rapidly sell off their shares and pull out of the market. This happens when a country is facing impending war and conflicts.

When the stock prices show a sharp down turn in the stock market, it is known as a stock market crash. While it is common for stock prices to go up and down, but when there is a sudden fall in the stock prices, the equity of a stock reduces. So, people are always keen on knowing why and how does a stock price change.

There are many reasons for a crash, but the most common ones economic reasons and psychological reasons. When an economy of a country is growing, the investor and consumer are very confident. So, they invest more money in the market. However, if the economy begins to slow down, these same investors who were investing in the stock market begin to panic and start selling their stocks. This causes too many stocks being sold and ultimately leads to a stock market crash.

Sometimes, it is a lone event that leads to a stock crash. For instance, if there is a change in the government or the country is attacked by terrorists, people begin to panic as they are not sure what the future holds for them. So, they start selling their stocks. Usually it is the top investors who first start selling and seeing them others follow suit.

Sometimes, a stock of a company is deemed to be one that will increase in value. So, investors start buying the shares of that particular company. This creates a sudden demand for the shares and creates a false appearance of the share being a strong one in the stock market

As a result, the price of the stock is artificially inflated and is more than its real value. However, after a certain point, it becomes apparent that the price of the stock is not the true price, so investors who were clamoring to buy the stock now start selling it and the price begins to fall. As the price of the stock starts falling, other investors start panicking leading to further fall in the price and more investors selling their stock. This ultimately leads to the stock market crashing.