Factors that Influence the Stock Markets
Stock markets are public exchanges in which traders can buy and sell company shares. Some of the best-known stock markets in the world include the London Stock Exchange (LSE), the Tokyo Stock Exchange (TSE) and New York Stock Exchange (NYSE).
Share prices change over time, either appreciating or depreciating in value. The difference between the buying and selling price determines the potential profit or loss that can be made from share trading.
Essentially, anything that influences a trader's willingness to buy or sell a company share can affect the stock market. Deciding to trade a company's shares or speculate on them through derivatives like spread betting and CFDs can be the result of both rational and emotional factors.
This is evident, for example, during a stock market frenzy or crash where the belief that a particular company or even an entire sector, such as banking, aviation, IT, etc., is doomed to decline rapidly in value. This then becomes a self-fulfilling prophecy as traders sell their stakes en masse. Note that with both financial spread betting and CFD you can speculate on share prices to drop.
Political and social events are among the most common influencing factors on stock market prices. The resulting movements can be based on rational calculations or emotional responses. Note that, although it is not advisable to trade on emotions, you should be aware that other traders may, which could consequently affect the underlying price of a share.
A company may have significant operations or sales in a particular market. Naturally, a political change that impedes a company's license to operate in that market can affect its sales or production and may ultimately cause a fall in its share price.
A social event can be sudden or take a longer time to evolve. The introduction of new technologies, for example, can seriously affect existing companies that fail to keep pace. Gradually increasing literacy levels around the world, can take a long term social change, mean that publishing companies may be able to increase their sales and consequently their stock market valuation.
Public companies are regulated and all companies quoted on the leading stock markets are required to publish their financial statements, usually quarterly. These results are frequently commented on by the financial media and analysts. This can influence investors as they interpret both the financial results in question and the reaction of other investors.
The economy, whether nationally or globally, can also affect stock markets. The onset of a recession is often marked by an increasing unwillingness of traders to take risks or to buy large volumes of shares.
Improving economies, on the other hand, can lead to a so called bull market, in which traders are increasingly confident regarding individual shares or entire sectors.
CFDs and Spread Betting come with high levels of risk to your investment capital. These investment formats are geared meaning that it is possible to lose more than your original stake or investment. Only speculate with funds you can afford to lose; always make sure that you fully understand the risks. Please note, CFDs and spread betting may not be suitable for your investment needs; where you feel it is necessary seek impartial financial guidance.
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About the Author:
Thomas Bainbridge is a respected commentator and author based in the heart of London's Canary Wharf. His primary focus is on the CFD trading and online spread betting markets.