Factors Affecting Stock Market Speculation

The stock market is probably one of the most volatile amongst others and that is why there often is a lot of stock market speculation. This is due to how prices are bound to change within seconds. It is the reason why most people have lost as well as earned huge amounts of money over the years. As an investor in this market, it is very important to pay attention to how prices of shares are determined over a given period of time. Without such knowledge, you will be taking shots in the dark.

Here is the major challenge 

A recent survey carried out revealed that most investors don’t understand the basis through which stock prices are being determined. Are you amongst such people? Do you know that such is only a recipe for losing your hard-earned money?

This post will be aiming to reveal some of the critical factors that determine stock prices. These may sound simple but will play a crucial role in determining whether you are making profits or losses from your investments over a given period of time. You are about to discover the key components of stock market speculation.

Forces of demand and supply 

It may shock you to know that the stock market operates in a similar way as economic markets. In other words, it tends to work according to the laws of demand and supply. Demand in this case, can be seen from the perspective of those who are willing to purchase a company’s shares. In a situation whereby there are lots of potential investors queuing up to purchase such shares, you can always expect the price to increase. It is the same as what applies with consumer products where there is likely to be price rise as demand increases. 

Whenever stock has been sold, there is usually exchange of money between seller and buyer. The buyer pays to acquire share ownership. The price at which such stock has been sold is going to be the new market price. Once another share is sold at a particular price, such will be the current market price. Simply put, the market price of a company’s shares is determined by how much it has been sold to the latest buyers.

On the other hand, when demand is low, there is every chance that the price of such stock is going to be affected. In other words, it will be reduced. Another factor that can reduce the price of stock in relation to the law of demand and supply is when there seems to be many sellers in the market.

Company earnings

This is another obvious factor that can easily determine the price of a company’s shares in the stock market. Companies are valued in the stock market based on their overall performances. There is an inverse relationship between the price of a company’s shares and its profits. When it exceeds expectations, the price of its shares are expected to rise. On the other hand, stock prices will decrease when performances are disappointing.

One of the major reasons for this development is that investors are more confident when a company performs well in its industry. They have this belief that the company has a bright future and its share price will likely increase sooner or later. This brings about an increase in demand thereby raising the price for shares. The better a company’s results and future projects, the higher its share price will be. Whenever a company announces its dividends over a given period of time, there is every chance that the price of its shares will increase.

Investor mindset

There are times when a company may not be performing excellent in the market. In other words, it is not making much money but the price of its stock seems to be rising continuously. The major factor responsible for this can be traced to how investors tend to project its future. They are optimistic that the company is likely to perform well in the nearest future. This could be due to how opinions from various experts about the company is expected to become more competitive in the future.

As time goes on, there is likely to be an increase in demand for such shares. This will further increase its price. The downside about this factor is that investors may lose out especially when the experts’ predictions are wrong. When the expectations of investors are high, expect stock prices of such companies to increase. Investor sentiments and attitude are as crucial as any other factor.

Market conditions 

By market conditions, we simply mean how economies are faring around the world. These are events that can affect economies either negatively or positively. Although events as such may not be permanent, they play a significant role in determining how companies will value their shares in the stock market. A typical example is the financial crisis which happened in 2008. The S&P 500 reduced by a whopping 37%. The share price of most major companies around the world reduced drastically as a result of this negative event.

Another instance has been the impact of the 2020 pandemic. This has succeeded in increasing investor pessimism. In a situation such as this, there is increased earnings volatility. The reason for this is quite obvious given that companies haven’t performed great in their respective industries. They have managed to reduce their labor force in response to decrease in demand for their products. A negative development such as this has succeeded in reducing their stock prices. Some other variables are takeover/merger, change of management, new product, scandals or accounting errors.

Market conditions can also be seen as economic trends. They are a reflection of how the economy is performing. When the economy is waxing stronger, there is every chance that price of shares will be positively affected. That is to say, they will increase since such is a sign that a company will likely perform very well. On the other hand, a weak economy doesn’t give investors hope about the future of a company. Also, it can affect the overall performance of a company thereby reducing the value of its shares in the stock market

Government policies 

This is another crucial factor that can affect prices of shares and the stock market speculation. Stock market is very much different from the cryptocurrency market. One reason for this is that the cryptocurrency market is not regulated by government rules and regulations, while the stock market is strictly operated in line with existing government policies. For instance, when there are unfavorable changes with regards to how companies are being taxed, there is every likelihood of their profitability being negatively affected. This will in turn affect their share prices over a given period of time. 

There are times when government policies may affect the operations of a company. This will in turn make potential and existing investors to start questioning its future. Problems like these can reduce its share price. On the other hand, government policies can help companies perform much better in their industries. This gives investors the hope that they can earn high ROI (return on investment) in the long run.

Interest rates

Most people are yet to believe that interest rates play a crucial part when it comes to how a company’s share is valued in the stock market. For instance, there is usually higher demand for funds once interest rate is reduced. This brings about increased demand for shares. According to the natural law of economics, there is every chance that such increased demand can contribute to the increase in share price.  

On the other hand, when interest rates are high from banks, demand for shares will reduce to a great extent. This will contribute to reduced price of shares. In a nutshell, interest rates can significantly influence how much a company decides to sell its shares in the stock market. This is because such rates can either motivate or deter potential and existing investors.


The players/investors in the stock market can also influence price to a great extent. For instance, whenever bulls seem to be more as compared to bears, expect the price to increase. On the other hand, more bears as compared to bulls will bring decline in price of a company’s shares.

Furthermore, investors are different with regards to motives. For instance, there are short term investors and long term investors. The former considers some factors before investing like demographics, trends and inflation. The latter type of investors majorly look at earning power. Their priorities are different and this can influence a company’s share price.

Short term investors are usually known for their subjective decisions. This can influence the price easily to either increase or decrease and sometimes due to their subjective decision there may be false stock market speculation. Long term investors tend to look at the bigger picture. They are not bothered by current market happenings/events. A company share which attracts too many short term investors will experience steady fluctuations unlike when a company has numerous long term investors.


Based on the above, it is obvious that there are lots of variables to be considered when it comes to how share prices are determined for the stock market speculation. These play very crucial roles in terms of how a company will decide to value its stock.

Our advice is to stay up to date with the latest information about each company you are interested in. Make your own research and be sure that you understand why a company has ups and downs. Buying a stock just because everyone else is doing it, doesn’t mean that you will profit from it. In most cases it turns out exactly the opposite. And remember, don’t buy based on emotion, buy based on facts. Be smart and don’t let stock market speculation from random people on the internet be the determining factor for your next investment.

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