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Stock fluctuation means the variation in the stock prices, which happens several times even in a single day, to understand stock fluctuations in various factors to be taken into account while assessing and evaluating the stock market’s price movements. Stock prices change every day due to market performance with stock. Due to various macroeconomic effects, the stock market is not a single entity; instead comprising various other influential factors that have a more significant impact on the financial markets. The combinations of development and disaster, demand and supply, macroeconomic elements, news etc., together act upon deciding the nativity of fluctuations in the stock market. In recent times, stock markets and significant OECD countries have experienced wide fluctuations that are potentially impacted by significant price movements at domestic and international levels.
Reasons for Stock Fluctuation
Stock fluctuations are caused due to multiple factors; one of the critical factors that may hold one back from investing in the stock market is it’s constant price fluctuations. A good market trader should understand its dynamic in trading and learn the stock market fundamentals due to its volatility. The following are some of the significant reasons for stock fluctuations.
Demand and supply
Demand and supply are those natural forces that significantly impact the stock fluctuations in the market. Various factors determine the demand and supply of company stock. In a perfect market condition, high demand and less stock supply make the price go high and less demand for stock makes the price fall; and this law of demand and supply theory explains the relationship between the availability of stocks and the desire to buy those stocks. For example, when traders are buying stock X, stock X’s price per share will increase. The same is true vice-versa. When traders are selling stock X, stock X’s share price will decrease.
These relationships are influenced by interest-rate corporate influences, economic conditions, market dynamics etc. Accordingly, the demand and supply are regulated by the companies issuing shares when the product supply goes down, which results in the falling price. The companies boost supply by increasing their stocks in the market by initial public offerings, spin-offs, or issuing new shares. In contrast, companies decrease their supply when the prices go up. The companies tend to buy back their stocks or delist their stocks, making the price higher.
Book – building
Book building is a process by which the corporate determine the demand and price of the proposed issue of securities through public bidding. The building’s main objective is to determine the quantum of the issue based on the price built. The bidding and allotment process will be authorized to lead manager merchant in filing forms and prices the price and demand option submitted by the better treated as optional cumulated. On the contrary, book building is also facilitated to allow the shareholders to tender their stocks. The acquisition has the freedom to accept or reject the offer. An exit price will be determined through the week average weekly price and loss, and the minimum price will be offered. This mechanism of book building and reverse book building has various impact on stock fluctuations.
Under-writing have a significant impact on stop fluctuations. An underwriter is a person who guarantees a minimum subscription of shares of the company, works for commission and agrees to sell the securities to the public. As defined by author Gerstenberg, “
Underwriting is an agreement entered into before the public brings the shares that in the event of public not taking up the whole of them the underwriter will take and allot those part of shares as the public has not applied for.” In this way, the underwriter creates a good demand for the company’s shares in artificial demand, resulting in its price going up. There are different types of underwriting; firm underwriting, sub-underwriting, joint underwriting, syndicate underwriting. The underwriters provide priced stability for the securities by purchasing the stocks, ultimately benefiting the stock market.
The nation reflects changes in interest rates and future prices in the financial market; it states that the expected increase in people’s wealth pushes the consumers to spread the wealth gain over the reminder of their pending a bit more fancy current and future consumption. Wealth factor is directly proportional to the demand and supply of stocks, thus influencing stock fluctuation
Speculative activities essential and integral part of the stock exchange market working; it is an act of buying and selling commodities by resuming future profits by identifying various markets and performances and rationality. A speculator is a person to profit nearly out of an anticipated change in price Based on knowledge and site guarding the market performances and price variations. They assume the existing risks in the market that arise out of natural or economic forces and bears the risk of loss. The two well-known speculators in stock markets are bull and bear, a speculator on the stock market exchange who expects a rise in the price of a particular security known bull and expects a fall in the company’s security price is known as a bear. They often do check the stock fluctuations and determine whether it as a bullish or bearish market.
Financial position and company profile
A listed company’s asset value and corporate governance and its profile greatly influence stock fluctuations; a company enjoying frequent profits from business and more demand on their listed stocks attracts more investors to purchase the stock, increasing the stock demand and causing an uptrend of stock prices. A poorly governed company not showing high returns of profit and having very minimal market appearances, and experiencing heavy loss in their financial position would collapse their company profile, reflecting in their stock price going down steadily in the market. All these events will be mirrored through stock fluctuations.
The price of security is greatly affected by the acceptance of their stocks in the money market by banks and financial institutions for buying and selling securities. The availability of bank credits at low interest will promote the purchase of stocks, causing stock prices to go high. On the contrary, when the interest rates determined by the bank rate charged by the country’s central monetary authority are higher, credit borrowing will decrease, causing a decline in a stock purchase, lowering its prices.
Changes in the political scenario worldwide will significantly impact the stock market, causing frequent fluctuations in the stock prices. The economic and legal activities within the country and the diplomatic and business relationships outside the government makes the stock market sensitive
Various stock market adjustment episodes have shown that, by lowering interest rates, monetary policy may have sufficient leverage to avoid and offset the effects of an essential reduction in equity prices.
Stock trends are defined as the general direction of stocks’ prices in the markets; a trend is the broad upward or downward movement of stock prices influenced by various factors upon the stock tendencies. It is analyzed by multiple technical instruments which specifies the fluctuations in stock prices and the future prospective prices of dividends of the listed stocks in the stock exchange market. Depending upon the market where the stock understood, the train movements are detected and fixed with the specified duration to be considered a trend.
They are detected using various technical analysis, including trend lines, price action, and technological indicators; these tools help provide accurate information on the stock movements and fluctuations, which allows the traders to trade in the direction of the trend attempting to acquire a profit through investments. Using these trends analysis, a person can attempt to predict a particular stock’s performance and the prospect of growth or decline.
The trend analysis is considered the most important activity in trading in the stock market. Multiple data are used in analyzing the stock market trends, which identify the speed and functioning of the stocks in the stock exchange market. This trend analysis makes use of both internal and external forces that influence the stock fluctuations. This accurate analysis will provide significant assistance to the investors in analyzing the market trends and trade for higher benefits. For example, if a person sells a stock before the price hit its peak, they might lose out on good profits.
Similarly, suppose someone buys before the price falls to its lowest price. In that case, they can make less profit then finally, it is sold out these intricate details can be analyzed using market trends and conduct the purchases and selling of stocks with proper knowledge of the market. There are three types of train movements in the stock market:
Uptrend refers to the price movement of the stock or assets in an upward direction. The graph movements are designated as peak and trough; an uptrend, each successive peak and trough is higher than the ones found earlier, it composes of higher swing lows and higher swings high. These rise in tops and bottoms of the graph after movement indicate that the stock listed is performing well in the market and will have a favourable settlement prospect in the future. These trends generally reflect the stocks’ high demand, thus driving the stock price higher. The market investors usually treat stocks at the time of uptrend by taking advantage of the stock tendency and stop fluctuations from making higher highs and higher lows. The traders also utilize these deadlines to identify the possible trends reversals at the downtrend or sideways trend.
Downtrend refers to the stock assets’ price movement in a downward direction, and the graph movements show the continuation of lower highs and lower lows in the stock chart. These movements convince the traders in the market that the stock prices will fall further and help them waiting on trading for a time; however, some traders also trade during downtrends by making short selling stocks. Short selling stocks are conducted by the trader borrowing shares and immediately sells them, hoping that the price will fall and if the price goes down and the trader will re-purchase the stocks back at the lower price and return the borrowed shares.
A sideways trend is otherwise called horizontal trends, where the price movement occurs in a manner when there is an equilibrium between the supply and demand of the stocks. In this type of trend, the traders or profited in several manners by making use of various stock options when the price moves above the resistance level or moves below the support level, which is generally called breakouts or breakdown. The traders speculate the price moving horizontally will be nearing the support level to purchase the stock, and when the prices near the resistance level, they sell the stock.
Stock Market Index
The stock index is defined as an indicator that provides a statistical representation of securities’ values in the stock market; it is created by evaluating the stock’s performance in the market on a macroeconomic scale. The price variations and fluctuations on the financial market stocks are integrated through the stock market index; it is considered a barometer for economic performance or financial performance. They are demanded to be maintained in the clear transparent, and systematic method by integrating all the indices and is expected to make a review available to the professionals and stock market participants.
Stock market indices are delivered through a variety of real-time and end of day market data winters. Some of the well-known stock market index publishers are the Wall Street Journal, Dow Jones Global Titans etc.
Stock trends are the index’s ups and downs when changing the stock market’s expectations about future dividends of the listed stocks. When the index goes up, the stock markets prospective dividend in the future will be better than that of the previously traded amount. In contrast, the future dividends in future become lowered, the index drops. The importance of the stock market index can be witnessed with its ideal duty of giving the readers an instant to instant reading about how the stock market person is the future of trade and industry.
Some of the most critical indices are the broad-based index and the benchmarking index, a primary-dominated index. There are various benchmarking and broad-based indexes; more specialized in this often finds an exciting market professional application. Many stock indexes are used as benchmark index for evaluating price fluctuations and market performance in India. Some are as follows:
- Benchmark indices like BSE Sensex and NSE Nifty
- Broad-based indices like Nifty 50 and BSE 100
- Market capitalization-based indices such as BSE Midcap and BSE Smallcap
- Sectoral indices such as CNX IT, Nifty FMCG, Nifty Bank Index, S&P BSE Oil and Gas, etc.
India index services and products Ltd is a joint venture between the national stock exchange of India Ltd NSE and the credit rating information services of India Ltd CR I SIL. The India index services and product Ltd have been formed to provide various industries and index-related services and products for the capital market participants. They are considered a consulting and licensing agent and stock provider of the world’s leading investable equity indices.
Conclusion and Suggestion
The stock exchange market is a dynamic platform; it causes to influence various aspects of the countries growth and development. However, it also gets affected by multiple factors which determine the regular performances of the stocks. Stock fluctuations are greatly influenced by macroeconomics elements that indicate the companies’ price movement and performance; they are analyzed by indicators like stock trends and stock market index. The relationship between supply and demand is the primary factor influencing the stock fluctuations; this theory of demand and supply of the individual stock cause to fluctuate the stock prices. Apart from this, other factors such as political influence, bank rates, company profile, speculation, underwriting, book-building etc., also play an essential part.
With highly accustomed technology, one should trade in the stock market with proper knowledge and information about the market trends; one must analyze the market performance of a stock that they wish to buy or sell and check for its prospective price values. Understanding the standards of macroeconomics, market structure, banking regulations and up to date financial market status, one can always pull the strings of becoming a stock market trader. By effectively speculating and predicting the stock prices would provide high value short-term and long-term profits.