The dynamic nature of stock markets means the price of traded shares can change quickly. Here we tell you about stock market fluctuation and why it happens.

Businesses and companies keep a keen eye on stock market reports, prominent in both general and financial media, because they illustrate national economic performance. 

You may have seen green and red numbers next to arrows pointing up and down in newspapers, websites and on TV but not know what it all means. First things first, let’s talk about the stock market.

What is the stock market?

The stock market is where buyers and sellers trade in such financial assets as bonds, currencies and equities. One of the most popular assets is shares. They're units of ownership in a company, and investors buy them to receive dividends from a company or make returns from future price hikes. 

Companies also sell their shares to raise capital. A company cannot trade on the stock market without a minimum of capital, shareholders and other requirements.

Brokers play a key role in the stock market. They're qualified professionals who introduce buyers to sellers and execute trades in exchange for commission. Companies and individuals looking to invest in the stock market should go through a broker.

When does the stock market fluctuate?

Like any other product, the price of shares hinges on supply and demand. Prices rise when the supply of shares for purchase is not enough to meet the demand of investors; they fall when fewer investors are interested in buying shares. 

Indices tell us how the stock market is faring. They use several listed companies’ performance to gauge what’s going on in the market and the economy.  The Dow Jones (US), the Nasdaq (US), the FTSE 100 (UK), the CAC 40 (France) and the IBEX 35 (Spain) are some of the most well-known indices.

Why does the stock market fluctuate?

Share prices generally go up and down because of supply and demand. However, they’re also influenced by these factors:

  • Information: When trading in shares, buyers and sellers check the latest news on a company or an industry. Their perception of the information may differ, which will also influence their decision to buy or sell. For instance, if a company announces plans to expand internationally, the potential surge in profits may spark investors’ interest and the share price may soar.

  • The economy: The performance of a country's or region’s economy, most notably gross domestic product (GDP) and interest rates, can have an impact on share prices.  As the GDP rises, production-based industries attract more investment and demand for shares. If interest rates increase, companies have to shell out more money to borrow, causing profit margins to shrink and shares to lose their appeal.

  • The company’s financial health: Listed companies are required to publish their financial statements regularly. The profit and loss they include can help shareholders and investors make trading decisions. If results presentations show positive figures, demand for shares could rise and affect their price.

  • External events: Impressions about a company’s performance can weigh heavily on the demand for its shares. Non-financial events like wars, pandemics and natural disasters give investors uncertainty about risks to the capital invested in the companies and industries they affect.

To learn more about the stock market, check out the five best books for investing in the stock market (in Spanish) on Santander Consumer España’s blog, Tu Futuro Próximo (“Your near future”).

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