What moves the stock prices

What influences share prices?

Shares are securities that companies issue when they go public and can be purchased by investors. Shares usually have a nominal value, but this is lower than the value at which the securities are traded on the stock exchange. They are traded at the so-called book value (the actual value), which is influenced by numerous factors. In this context, the following question also arises: What influences share prices?

What is a share price?

In principle, the stock exchange can be compared to a marketplace where investors can trade shares. Supply and demand determine the actual share price for which the share is ultimately traded.

The calculation of the share price

Investors have their own ideas about the prices at which they want to acquire and sell certain shares. Ultimately, the price of a share determines at what price it can then be bought and sold. The share price is determined by stock brokers. They observe the market and then calculate the price. Previously, such calculations were done manually, which was extremely laborious. Today, a computer does this, starting with the data collection and ending with the price calculation. The aim is to determine the highest possible price at which the most company shares change hands. The goal is to stimulate the market in order to achieve the highest possible turnover.

The wishes of the shareholders

Many shareholders place further demands on the price of a company share in addition to the price they expect to pay. For example, a share should only be released for sale at a price set by the seller, regardless of the current price. The share sell order is thus not released below the specified minimum value. The salesman can secure himself thus against a too high loss.

On the other hand, potential stock buyers set a maximum price for the purchase, above which no buy order is released. Finally, the computer at the stock exchange calculates the share price based on all these factors. The sense behind this is logical: the buyers minimize the risk of buying shares beyond their financial possibilities and possibly even falling into a debt trap.

Factors that influence the share price

With reference to the question “What influences share prices?” it has already been mentioned that the price of shares always changes on the basis of supply and demand. However, it is also important to know which other factors can influence the supply and demand for a company share. In practice, there are various economic, political and psychological aspects that can affect the share price.

What influences share prices:

The current situation in an industry: If there is an upward trend in the energy sector, most share prices within the same industry will be affected.
The political situation in the country: Share prices are negatively influenced by crises, for example. In addition, the overall share price usually falls before major political changes. Here is a brief example: The London Stock Exchange was on the verge of a stock market crash with the announcement of brexit.
The price level on the markets: Whenever most prices go up, they always pull the remaining shares along with them.
The economic development: Last but not least, the general situation in a country can also have an impact on the price development.

Share prices are usually quoted on the stock exchanges in the currency that is the home currency for the issuing corporation. Many individual shares are combined into groups. They thus form an index, such as the German Share Index (DAX). Here the prices of the 30 shares included in the DAX are combined to form an index. The movement of the index is thus again due to changes in the share prices.

Share prices and indices

Interested investors who deal with shares always encounter terms like DAX, MDAX or TecDAX in this context. These are the indices already mentioned. Each country has its own share indices, which are shaped by the respective economy. Among the most important indices in Germany are, besides the German Stock Index, also

  • the MDAX (German midcaps)
  • the SDAX (German small caps)
  • the TecDAX (the 30 largest technology companies in addition to the DAX)
  • the HDAX (combined index of DAX, MDAX and TecDAX)

There are also numerous other German indices, such as the ÖkoDAX, which includes the ten largest companies in the renewable energy sector, the Natur-Aktien-Index (NAI) or the Nisax20, which includes the 20 largest listed companies in Lower Saxony.

International Indices

Of course, trading in shares is not limited to local companies, but also takes place on an international level. Some of the major indices are, for example, the French leading index CAC 40, the British leading index FTSE 100 or the Japanese leading index Nikkei 225. However, the following indices from the USA are of particular global importance:

  • Dow Jones Industrial Average (contains the 30 largest US stock corporations)
  • NASDAQ-100 (includes the 100 largest technology companies on NASDAQ)
  • Nasdaq Composite (contains all NASDAQ companies)
  • NYSE Composite (contains all NYSE companies)
  • Russell 1000 (includes 1,000 largest US public companies)
  • S&P 100 (includes the 100 largest US public companies)
  • S&P 500 (includes the 500 largest US public companies)
  • Wilshire 5000 (includes all US public companies)

If you want to invest in a whole basket of shares instead of individual shares, you should take a look at the world’s most important share indices.

Share prices – understandable even for beginners

The stock exchange and the terms from the stock world often seem strange and somewhat opaque to beginners. The organization of the markets and courses as well as the principle of the stock exchange are actually quite simple and also for share newcomers simply comprehensible. Who would like itself to concern gladly more near with the share trade and plans to invest its money in shares, should itself above all with

  • the fundamentals of stock trading,
  • the technical terms related to trading in shares,
  • the past development and
  • the forecasts for certain securities
  • to deal with. Only in this way can a safe entry into the world of stock trading be successful.

It is completely normal that at the beginning everything seems a little much and with it connected uncertainty arises whether the saved money is really in good hands at the stock exchange. All beginners are advised at this point to open a sample portfolio or a demo account. This makes it possible to familiarize oneself with the developments on the stock exchange, forecasts and share prices and to buy and sell shares with virtual money without risk.

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