How the prise of shares go up of down, how it works and what influences the price

The rise or fall in a share's price is a complex interplay of supply and demand, driven by a constant flow of information, expectations, emotions, and technical factors. Let's examine this process in a technical and in-depth manner.

1. The Order Book Mechanism (Supply and Demand)

The core of price formation on an exchange is the order book. This is a dynamic list of all buy orders (bids) and sell orders (asks or offers) for a specific share at a given moment.

 * Bids: These are orders from buyers willing to purchase a share at a certain price or lower. They specify the number of shares they want to buy and the maximum price they're willing to pay (the bid price). The highest bid price is called the best bid price.

 * Asks / Offers: These are orders from sellers willing to sell a share at a certain price or higher. They specify the number of shares they want to sell and the minimum price they want to receive (the ask price). The lowest ask price is called the best ask price.

The spread is the difference between the best bid price and the best ask price. This represents the immediate cost of buying and selling a share instantly.

How Does a Transaction Occur?

A transaction occurs when a bid price and an ask price match. There are two main types of orders that facilitate this:

 * Market Order: An order to buy or sell immediately at the best available price in the order book.

   * Market Buy Order: A buyer placing a market order will instantly buy at the lowest available ask price. If there aren't enough shares available at that price, the order will continue to fill at the next lowest ask price until the entire order is executed. This drives the price up.

   * Market Sell Order: A seller placing a market order will instantly sell at the highest available bid price. If there isn't enough demand at that price, the order will continue to fill at the next highest bid price until the entire order is executed. This drives the price down.

 * Limit Order: An order to buy or sell at a specific price or better.

   * Limit Buy Order: A buyer sets a maximum price they're willing to pay. If the ask price is at or below the limit price, the order is executed. Otherwise, the order remains in the order book until the condition is met or the order is canceled.

   * Limit Sell Order: A seller sets a minimum price they're willing to receive. If the bid price is at or above the limit price, the order is executed. Otherwise, the order remains in the order book.

Price Fluctuation Due to Order Flow:

The price of a share is the price of the last executed transaction.

 * Rising Price: Occurs when there's an excess of buying pressure. This happens when:

   * Many market buy orders are placed, "eating up" the available asks and activating higher asks.

   * Buyers are willing to place higher bid prices (new limit buy orders above the previous best bid price) in anticipation of further increases.

   * Sellers withdraw their limit sell orders or place them at higher prices.

 * Falling Price: Occurs when there's an excess of selling pressure. This happens when:

   * Many market sell orders are placed, "eating up" the available bids and activating lower bids.

   * Sellers are willing to accept lower ask prices (new limit sell orders below the previous best ask price) to quickly offload their shares.

   * Buyers withdraw their limit buy orders or place them at lower prices.

2. Fundamental Drivers (Long Term)

While the order book explains the immediate mechanisms of price movement, the direction and magnitude of supply and demand pressure are ultimately determined by fundamental factors:

 * Company Fundamentals:

   * Profitability and Growth Prospects: Analysts and investors project future earnings. Positive expectations (e.g., higher-than-expected earnings, successful product launches, expansion into new markets) lead to a higher "intrinsic value" of the share, attracting more buyers and leading to higher bid prices. Conversely, negative outlooks lead to lower valuations and more selling pressure.

   * Cash Flow Generation: Strong free cash flow is crucial. Companies with solid cash flows can invest, repay debt, or pay dividends, increasing the share's attractiveness.

   * Balance Sheet Strength: A healthy balance sheet (low debt, sufficient liquid assets) reduces risk and increases confidence.

   * Management Quality: Investors value competent and strategic management that can guide the company through challenges and seize opportunities.

   * Competitive Position: A strong competitive position (e.g., monopoly, strong brands, patents) ensures sustainable profitability.

   * Dividend Policy: For income-oriented investors, a stable or growing dividend is a significant factor.

 * Macroeconomic Factors:

   * Interest Rates: Higher interest rates make alternative investments (like bonds) more attractive, which can divert money away from stocks. Lower interest rates often have a positive effect on stock prices. This is also because higher interest rates increase borrowing costs for companies and decrease the present value of future earnings (which are discounted at a higher rate).

   * Inflation: High inflation can erode companies' profit margins if they cannot pass on cost increases. It can also reduce the purchasing power of future dividends.

   * Economic Growth (GDP): In a growing economy, companies generally expect higher revenues and profits, which is positive for stocks.

   * Unemployment Rates, Consumer Confidence: These macroeconomic indicators provide insight into the overall health of the economy and can influence investor sentiment.

 * Geopolitical and Regulatory Factors:

   * Political Stability, Trade Conflicts, Wars: These can create uncertainty and lead to risk-averse behavior, putting pressure on the stock market.

   * New Laws and Regulations: These can affect the operations and profitability of specific sectors or companies.

3. Psychological and Technical Drivers (Short/Medium Term)

Besides fundamental value, psychological and technical factors also influence price movements:

 * Market Sentiment: The overall mood among investors. Fear and greed play a large role. Positive news can lead to "fear of missing out" (FOMO), causing investors to buy en masse and drive the price up. Negative news can lead to panic selling.

 * Technical Analysis: Many traders and investors use historical price and volume data to identify patterns and predict future movements. Concepts include:

   * Support and Resistance Levels: Prices where there has historically been significant buying or selling pressure.

   * Trends: Prices often move in trends (upward, downward, sideways) that can be broken.

   * Indicators: Mathematical calculations based on price and volume (e.g., Moving Averages, RSI, MACD) that can generate buy or sell signals and indicate the momentum or overbought/oversold conditions of a share.

   * Volume: An increase in volume accompanying a price movement can confirm the strength of that movement.

 * Liquidity: The ease with which a share can be bought or sold without significantly affecting its price. Illiquid shares can react more strongly to small orders.

 * Institutional Flows: Large institutional investors (pension funds, hedge funds) buying or selling large quantities of shares can have a considerable impact on the price. Their decisions are often based on fundamental analysis, but the size of their transactions can create technical effects.

 * Algorithmic Trading (High-Frequency Trading): Automated systems that place and cancel orders at high speed based on complex algorithms. This can cause rapid, short-term price fluctuations and contributes to liquidity.

The Cycle of Price Formation:

 * Information: New information becomes available about the company, sector, or economy.

 * Analysis and Interpretation: Investors analyze this information and form expectations about the share's future performance and value.

 * Decision-Making: Based on their analysis, investors decide to buy, sell, or hold their position.

 * Order Placement: Investors place buy or sell orders in the order book.

 * Transaction: If a buy and sell order match, a transaction occurs. The price of this transaction becomes the new market price.

 * Price Movement: An excess of buy or sell orders leads to a rise or fall in the price.

 * Feedback Loop: The new price movement and its underlying reasons are, in turn, analyzed, leading to new decisions and further order placements.

This continuous process of information processing, expectation formation, and the matching of buy and sell orders on the exchange is at the heart of how stock prices rise or fall. It is a dynamic system where fundamental value is dominant in the long term, but where psychology and technical factors can exert significant influence in the shorter term.