How do Stock Prices Change?

By Robbin Carols

If you purchase stocks, there are two main ways you can make money from the purchase. First of all, you can be paid dividends. When a corporation makes a profit, they may decide to pay some of it as dividends to their shareholder such as $1 a year per share, but this isn't guaranteed.

The other way to make money is through capital gains. This means that you have bought the stock at one price and then sell it at a higher price. The difference between the price paid and the price sold is your capital gains.

When investors purchase stock, they are doing it in hopes of making capital gains. Those in retirement usually look for dividend paying stock because it is a stable source of income. Otherwise, dividends are just a bonus to the investment.

You can't make capital gains unless the price goes up. (unless your selling short, but that's an entirely different idea) Stock prices are always changing and can go up or down. What makes them change?

The price of stocks goes up and down the same way that the price of anything else goes up and down. It is an economic principle of supply and demand. Maybe you remember that from your economic class.

When the supply increases and the demand stays the same, the price will decrease. When the demand increases and the supply stays the same, the price increases. They vary inversely and the price adjusts along with them.

The price of a stock will go up if there are more people wanting to buy than willing to sell. The price of a stock will go down if there are more people wanting to sell than there are willing to buy.

Once you understand supply and demand, you can understand how to make capital gains. You should try to purchase stocks that you feel will be a very popular buy in the future. - 23212

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Do you want to know how do stocks work? Find out if you should choose the stock market or bond market to invest in.