How do Stock Prices Work?
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by: RobbinCarols
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Word Count: 339
If you purchase stocks, there are two main ways you can make money from the purchase. First of all, you can be paid dividends. When a corporation makes a profit, they may decide to pay some of it as dividends to their shareholder such as $1 a year per share, but this isn't guaranteed.
The other way to make money is through capital gains. This means that you have bought the stock at one price and then sell it at a higher price. The difference between the price paid and the price sold is your capital gains.
When someone buys shares of stock, they do so in hopes of profiting through capital gains. High dividend paying stocks are often sought after by retirees who are looking for a stable source of income.
You can't make capital gains unless the price goes up. (unless your selling short, but that's an entirely different idea) Stock prices are always changing and can go up or down. What makes them change?
Do you remember the principle of supply and demand that you learned in your high school economics class? It is a basic term that explains the change in stock prices just as the change in prices of any other goods or services.
An increase in supply with the same demand will decrease the price. An increase in demand with the same supply increases the price. The price changes depending on whether and how supply and demand change.
With stocks, if a lot of people want to buy a particular stock and not enough people are selling, they will have to raise the price to accommodate for it. If there are more people looking to sell than people willing to buy, they will need to decrease the price to get people to buy.
Understand supply and demand and you can understand what to look for in a stock. You want a higher price after you buy, so you want more people wanting to buy later on.
About the Author
How do stock prices work? Learn this and how to buy stocks so you can start investing today!
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