Shares are a widespread trade to get into that allows all sorts of traders to invest without all the tediousness. This is a trade that’s pretty light, great for starting or small traders and is also a great market to invest in since returns can be quite promising.
As a starting share trader, one of the first things you should know is what makes this market move. There are tons of factors that move the price of shares and each of these factors heavily impacts your chances of profiting, reasons why it’s pretty essential to know about.
So to get you started, below are common factors that can affect the price of shares.
1 – Company performance
Among all the factors this one is a common reason why the price of shares is affected. The share price of a company may be strongly impacted by its financial performance, including its revenue, profitability, growth prospects, and general financial health.
Share prices frequently rise after a strong performance, whereas share prices might fall after a weak performance. Quarterly and annual financial performance reports are made available by publicly listed corporations. Investors determine the company’s performance based on metrics including (EPS) earnings per share, the P&L account, sales statements, and ratio analysis.
Share prices fluctuate as a result of this. Companies may change their quarterly profits outlook, alerting investors to a potential fall in earnings as a result of specific reasons.
2 – A company’s earnings and dividends
Investors pay close attention to a company’s earnings and dividend payments. Better share prices can be achieved by attracting investors with better earnings and appealing dividend yields. But to help you understand a bit better, here’s how:
How can a company’s earnings affect share prices?
Earnings, usually referred to as profits, are a gauge of a company’s financial performance. Higher earnings often mean that the business is making more money and running more effectively. Strong financial results can improve investor confidence and excitement about the company’s prospects going forwards.
As a result, the price of the company’s shares might increase due to increased demand for its shares. On the other hand, if a company’s earnings are below expectations or deteriorating, it may undermine investor confidence and depress the share price.
How can a company’s dividends affect share prices?
Dividends are the earnings that a company provides to its investors as a return on their capital. A company’s decision to declare and pay dividends is an indication of its stability and strength. Investors who are income-focused, such as retirees or individuals looking for consistent income from their assets, find dividends to be particularly alluring.
When a business pays dividends consistently or raises them over time, it may draw in additional investors, boosting demand for the stock and maybe raising the share price. In contrast, a company’s decision to cut or stop paying dividends may dissatisfy income-seeking investors and cause its share price to fall.
3 – Geo-political developments
Geopolitical events, such as elections, wars, civil unrest, political instability, natural disasters, and pandemics, contribute to increased volatility in the stock market. For example, during elections, investor confidence tends to rise if the upcoming government is perceived as beneficial for the economy, supportive of businesses, advocating tax reductions, and likely to make decisions favourable to investors.
In such cases, the stock market may experience a surge. Conversely, during crises, investors often respond with panic selling to secure their profits, resulting in a decline in the market.
4 – Macroeconomic data/news
Share prices can be affected by broader macroeconomic news, such as shifts in GDP growth, Inflation, interest rates, rate of unemployment, or geopolitical developments. These elements may have an impact on market conditions and investor mood, which in turn may have an effect on stock prices.
A surge in share prices might result from good economic news, like high GDP growth or lowering unemployment rates, which can bolster investor confidence. On the other hand, unfavourable economic news might raise doubt and cause stock values to fall.
Take away
So if you’re wondering how to trade shares the right way? This is the first step! Learn everything you can about the market you’re planning to get into. This is crucial since these factors make up a huge chunk of your profiting and overall trading experience. So read, read, read and learn everything you possibly can before trading!
