If you are able to predict when stock prices are going to rise or fall, you can earn a fortune on the stock market. It is the differences in prices with which the most money is earned. A decrease or increase in the value of stocks can have many different causes.
A short and simple explanation for an increase in price would be that the demand for the stocks is higher than the supply. This is the same way a normal market works. If there is a lot of demand for a particular product, but the supply is low, the price of the product will rise. This also applies to stocks. The question, however, is how you can know when the demand for certain stocks (and therefore their price) will start to rise.
Causes of a price increase or decrease
When investing in CFDs, you buy stocks for the short term and anticipate a future rapid increase or decrease in a stock price. It is therefore good to know what can bring about such a change in the price. This can have a range of different causes. We give some examples below.
Profit forecast and quarterly figures
The expectation of the amount of profit a company will make contributes to the decline or rise of a stock. If there is a very positive profit forecast, this gives a stock of a company a good future perspective. More investors will therefore want to buy a stock. On the other hand, a negative profit forecast obviously has an opposite effect.
The expectations that are expressed about the figures of a company are interesting because you can use them to predict future increases and decreases. You will only know for sure after the quarterly figures are published. At that time, stockholders will know for sure which results have been achieved and will act accordingly.
Developments in the world
Developments taking place in the world also have an effect on the stock market. If in a certain part of the world, for example, there is an uncertain political climate or a threat of the outbreak of war, this will cause stocks to rise or fall. Natural disasters are also a cause for sudden changes in the price of stocks.
Negative developments in the world do not always have to have a negative effect on the value of stocks. For example, a threat of the outbreak of war in a certain part of the world may cause stock prices to rise in another part. This kind of news will also have an effect on, among other things, the price of oil and gold.
Inflation and interest rates
An indication that stock prices will rise or fall can also be a change in inflation or interest rates. For example, high inflation in a country is not good for stock prices. Thus the expectation is that when this happens the stock prices will start to fall. A low inflation rate may then be an indication that they will rise.
Interest rates also have a clear influence on the price of stocks. Low interest rates on loans provide a favourable environment for companies. After all, they can borrow money at a lower interest rate. An increase in these interest rates has the opposite effect and may indicate a future decline in stock prices.