Why Do Stock Prices Fluctuate?

Stock price fluctuation is the key to the success of investors in stock trading. Investment profit in stock trading is earned from the difference between the selling and buying price of stocks. When the stock price rises, you can “harvest gains” by selling the stocks you own. However, if the stock price falls, investors will usually choose to hold their stocks and wait until the price rises.

Causes of Stock Price Fluctuation

There must be a reason as to why stock prices fluctuate. Knowing the reasons might help you analyze and predict future price movements. So you can decide whether to buy the stocks or not.

These are several factors that cause the stock prices fluctuate:

Macroeconomic conditions

This factor will have a direct impact on the rise and fall of stock prices. There are number of issues that go into this factor, including:

Change in Bank Indonesia’s benchmark interest rates
Inflation rate
Change in interest rates as a result of US Central Bank’s policy

Beside that, political issues and high levels of unemployment within a country can also affect the stock price changes in the market.

Government policies

Every time a government issues a policy related to finances, it will have an impact on the stock price changes. Even if the policy is not yet valid and is still being proposed. Investors may have predicted the impacts of that policy when it is actually being realized, so they will try to anticipate it. Some policies that can affect the stock price changes are policies related to debts, export and import, and foreign investments.

Rupiah exchange rate

This factor is related to the company’s finances. A company that has debt loads in foreign currency will suffer losses and a decline in stock prices when rupiah exchange rate is weak. As that company will have higher costs for its operating expenses.

Supply and demand

This point is basically seen as a cycle. Stock trading uses the law of economics related to supply and demand, where price will rise if the demand is greater than the supply and vice versa. When the stock prices rise, the investors who held their stocks in the hope that they would earn higher returns, will then sell their stocks.

When the conditions are reversed, in the event that the supply is greater than the demand, the stock prices might drop. This condition is called a cycle because it will continue to rotate like this.

Recent news and rumors

Any stock-related news, that has already happened or is still a rumor, can cause sudden change of supply and demand. Some investors will probably panic sell, even if the stock selling price is below its buying price, when they hear negative rumors about the company they invest in. This will cause that company’s stock prices to fall and it will keep falling due to the condition.

Company management policy

Every company may issue or change its policies to follow the current economic conditions. Especially the policy related to company’s ownership such as company acquisition or merger. This policy will directly affect the stock prices in the market because there is a strong connection between the change in management and a company’s future performance.

Company’s performance projection

A company will have higher value if it has stable or rising profits. Earning a profit is a company’s primary goal. A company that is projected to have good profits in the future will have a high selling price. Usually, a public company will be asked to report its profits within a specified period of time. This data is used as one of the references for the investors in doing the analysis to project future profits.

Stock prices can change so quickly, moreover if there is political or economic shock within a country. Consequently, every investor who does stock trading will always observe those movements so that they can decide the best time to sell or buy a company’s stock.

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