Why Do Stock Market Turn Volatile?--[Step-By-Step Solutions]

by MD Tanjib Forex Trading Author

Hi, traders. It's true that trading markets are volatile and there are few reasons behind that. But in today's topic, we will know about how stock prices fluctuate and why it turns volatile?

So, the reason behind the fluctuations of the stock prices is "supply and demand". 'Supply' refers to the total number of people who would be willing to sell their shares at any price. ‘Demand’ refers to the total amount of people who are potential buyers and would be willing to buy at any price.

The main reasons that affect the demand and supply of the stock are:

Important news regarding the company (either positive, negative, or neutral):

If there is positive news regarding a company, then its demand increases. If the news is negative then the demand decreases and people are trying to sell their stocks. And if the news is neutral, then people can be uncertain.

Ideas and strategies of the investors:

I have never met two such investors who agree on every point regarding a stock. Every investor has his own ideas and strategies. Some people may like the stock, while others dislike it (due to various reasons). This difference in the ideas and strategies of the investors also affects the demand for a stock.

Psychological factors:

The stock market is run on sentiments and ‘greed & fear’ are the driving force here. When the people are greedy, then the demand increases. When the people are fearful, they want to sell all their stocks and exit which causes an increase in supply. The greed and fear of the people cause fluctuations in the stock price. Further, all the people are not greedy or fearful at the same time.

Earnings of the company:

Earnings are the measure of a company’s profitability. Everyone wants to invest in a profitable business. Stock prices show the present value of the future earnings expectations of the company.

Other factors:

There are a number of other variables also that govern the fluctuations in the share market. They are- change on government policies (new charges, increase in excise duty, sales tax, annual budget), fluctuations in bank interest rate, domestic and international institutional investors involvement, fluctuations in international indexes like dow jones of US, DAX in Germany, Nikkei in Japan, etc, speculations of people, political instability, country’s economic, business conditions, etc.

The Bottom Line

That's how the markets turn volatile. Whatever with a great broker, you can go beyond. That's why read the FP Markets review to know more about brokers' offerings.

Best of luck!