Understanding how stock market price rises and falls is similar to understanding the prices of other products in the market. It also follows the law of supply and demand. Price of stocks rise and fall due to the following reasons:

1. Company profit projections and image

A company's growth and profit forecasts describe how capable a company is in delivering its promises to its investors. These numerical projections are carefully prepared by a company based on their past profits and projected additional profits due to new products and services, operations and infrastructure improvement.

Aside from profit forecasts, company image can also make an impact on a company's profitability. Rumors of change in management, take-over, mergers, and even personal issues about the company's top executives can affect the company's image.

For example, a rumor of a merger between two big companies projects more stability and greater profit projections for both companies. As more investors would want to buy stocks from these merging

companies, the demand for their stocks will rise. Based on the law of supply and demand: the greater the demand for stocks, the higher will their prices be.

A bankruptcy rumor about a company can send its investors to sell all their stocks. If there are more sellers than buyers of stocks then the supply (of stocks) is greater than the demand for stocks thus, stock price will fall.

2. Political Economy

General news about the local and global politics has an immediate impact on the economy and consequently to stock market prices. Politics and economics are correlated. Positive news such as lower unemployment rates, increased productivity, peace and order, and strong confidence in the government has positive impact on the economy. Such news encourages more local and international investors to open companies in a certain location or country. This in turn would generate more jobs, and as an effect, would encourage more trading in the market at higher stock prices in general due to the increase in demand for stocks of different

companies. On the other hand, negative news such as political instability and turmoil, security problems such as terrorism and insurgency, frequent strikes, and inflation has negative impact on the stock market prices. Investors are driven away by these things and close-up. As an effect, more stockholders would sell out. This creates more sellers than buyers thus stock market prices fall.

3. Interest rates

Higher interest rates are associated with a slump in economic growth. This creates a sluggish environment where investors become apprehensive in buying stocks. Either they keep the status quo or sell out their stocks. When the demand for stocks is not high, prices will go down.

About the author:

Find out more about http://stocksandshares.us>stocks and http://stocksandshares.us>shares at http://stocksandshares.us>http://stocksandshares.us

Avoiding Common Stock Market Scams
It seems that there are more and more scams and dishonest deals in the news every day... and it may appear that no one is safe. Many people put off...

FOREX Trading Strategies
FOREX Trading Strategies To be a successful FOREX trader you need to develop and adhere to a trading strategy. There are many different...

The Forex Market
* This article is divided into three sections. The first section is for beginners. The second section is for advanced traders. The third section is...

Commodity Futures Trading - Why It's Not For Average Investors, or How to Lose Money Quickly Without A Trip to Las Vegas
If you don't mind losing $5,000 in 10 minutes, you may enjoy trading commodity futures contracts. There's an old saying among commodity traders:...