How Share Prices Move: Demand and Supply Explained Simply
Introduction: Why Do Share Prices Keep Changing?
If you’ve ever checked stock prices, you may have noticed that they keep moving up and down—sometimes even within minutes.
This often leads beginners to ask:
- Why did this stock go up today?
- Why did it fall even though the company is good?
- Who decides the share price?
The answer is simpler than it looks.
In this article, you’ll learn how share prices move, explained using basic demand and supply, without charts or complex math.
The Core Rule: Demand and Supply
Share prices move because of demand and supply.
- When more people want to buy a share than sell it → price goes up
- When more people want to sell a share than buy it → price goes down
That’s it.
Everything else in the stock market builds on this single rule.
Who Creates Demand and Supply?
Demand and supply come from investors and traders.
People buy shares when they believe:
- The company will grow
- Profits will increase
- The future looks positive
People sell shares when they believe:
- Growth may slow
- Profits may fall
- Better opportunities exist elsewhere
Every buy and sell decision adds to demand or supply.
Why Good News Pushes Prices Up
When positive news comes out, such as:
- Strong company profits
- New product launches
- Business expansion
- Industry growth
More people want to buy the stock.
This increases demand.
If sellers are fewer, buyers are willing to pay higher prices, pushing the stock up.
Why Bad News Pushes Prices DownNegative news can include:
- Lower profits
- Business losses
- Legal or regulatory issues
- Economic slowdown
When bad news appears:
- More people want to sell
- Fewer people want to buy
This increases supply, causing prices to fall.
Expectations Matter More Than Reality
This is a very important beginner concept.
Share prices move based on expectations about the future, not just current performance.
Example:
- If profits were expected to be high but turn out average → price may fall
- If profits were expected to be poor but turn out decent → price may rise
Markets react to surprises, not just results.
Why Prices Move Even Without News
Sometimes prices move even when there’s no big news.
This happens due to:
- General market sentiment
- Global events
- Interest rate expectations
- Investor emotions (fear or optimism)
In short periods, prices are influenced more by emotion than fundamentals.
Short-Term Price Movement vs Long-Term Value
Short-Term
- Driven by news, emotions, speculation
- Prices can move unpredictably
Long-Term
- Driven by business growth
- Profits, revenue, and sustainability matter more
This is why long-term investors worry less about daily price movement.
Why Prices Can Fall Even for Good Companies
Beginners often get confused here.
A good company’s share price can fall because:
- Overall market is down
- Short-term profits are weak
- Expectations were too high earlier
- Investors are shifting money elsewhere
A falling price does not always mean the business is bad.
Who Decides the “Right” Share Price?
No single person or authority decides share prices.
Prices are decided collectively by:
- Millions of buyers and sellers
- Based on available information
- Through continuous buying and selling
The stock market is like a crowd voting machine in the short term.
Can Share Prices Be Manipulated?
In the short term, prices can be influenced by:
- Rumors
- Panic
- Speculation
But in the long term:
- Business performance matters most
- Manipulation becomes difficult
- Fundamentals catch up
This is why long-term investing reduces many risks.
How Beginners Should Think About Price Movements
A healthy beginner mindset:
- Don’t panic over daily changes
- Focus on understanding the business
- Accept short-term volatility as normal
- Think in years, not days
Watching prices too frequently often leads to emotional decisions.
Common Beginner Myths About Share Prices
Myth 1: Prices move randomly
Truth: Prices move due to demand, supply, and expectations.
Myth 2: A falling price always means bad company
Truth: Short-term prices don’t always reflect long-term value.
Myth 3: Experts always know where prices will go
Truth: No one can predict prices consistently.
Final Thoughts
Share prices are not magic numbers on a screen.
They reflect:
- What people believe today
- What they expect tomorrow
- How demand and supply interact
Once you understand this, price movements feel less scary and more logical.
What to Read Next
👉 What Is Market Capitalization? Large-Cap, Mid-Cap, Small-Cap Explained
🔑 Key Takeaway
Share prices move because of demand and supply.
Short-term movements are emotional.
Long-term prices follow business performance.