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[I208]In Stock Market Prices

by Roger Overanout, Rog

Have you ever wondered what make the stock market rise and fall? If you watch the news at all, you will have seen the stock market levels mentioned. You have probably also noticed that the prices rise and fall each day. Why stock market prices rise and fall is a complex question with a complex answer.

There are many factors that affect the price of stocks. Included are inflation, interest rates, domestic political unrest, war or terrorism, crime, fraud and oil or energy prices to name but a few.

All of these factors will drive the price of the stock market up or down. However regardless of these factors, the price of stocks is liquid and it is determined by how much buyers are prepared to spend and how much sellers will take for their stock.

Usually, to tame the rate of inflation, the federal government hikes interest rates. While this slows the inflation rate, it also raises the interest in small lending institution stocks (these are guaranteed by the government, thus VERY attractive here). This in turn moves investors away from equity stocks in lieu of the guarantee available with the small lenders. Risk here is lower, obviously.

This affects stock prices in several areas of the market. What happens is this: say a stock was selling at $20 per share before the interest rate went up from 5% to 6%. So the stock price is figured like this: 1/. 05= $20. After the hike, the price is now down to $16.67 per share or 1/. 06. This represents an almost 17% drop. Taken right across the market, this can adversely affect many other stocks as well and drive the market down temporarily.

A spike in oil prices can and will affect auto prices, food prices, gas prices and many others, thus effectively pushing inflation upwards. This presses the government to raise interest rates and we have the example above all over again.

War abroad can affect the market, too. A recent example is the war in Iraq, which has driven oil prices up to unprecedented levels. We have all seen the exorbitant gasoline prices that have been the result, but now we are seeing hikes in home lending, grocery prices and transportation costs also.

So as you can see, there are many scenarios that can unfold and affect how the stock market prices rise and fall. All these factors play out together in the rise and fall of the stock market. If you watch it closely, you can pick out the trends and accurately predict price hikes, interest rate increases or when inflation will occur again.

Another factor in how the stock market rises and falls is foreign currency rates. As a particular currency fluctuates, stock prices in companies based in that country will react accordingly. When the Japanese yen falls, so does interest in Japanese technology stocks. Conversely, if the US dollar falls to dangerous levels, our government simply prints some more paper money and places it in circulation. This, in my personal opinion, creates a false sense of security in the economy.

However you look at it, stock prices affect how we live every day. All aspects of our daily lives are affected. Grocery prices, gas prices and the cost of buying anything are driven up. So watch the stock market closely. It affects you whether you know it or not.

The usual description of any market assumes that every trader wishes to purchase or sell a known quantity at each possible price. All the traders come together, and in one way or another price is found that clears the market - that is, makes the quantity demanded as close as possible to the quantity supplied.

After all it has been said by the authoritative stock trader W. Haddad of B.K. Labovitch that ultimately economics is supply and demand.

This may or may not be an adequate description of the markets for consumer goods, but it is clearly inadequate when describing security markets. The value of any capital asset depends on its future prospects, which are almost always uncertain. Any information that bears on such prospects may lead to a, which s we know are always uncertain. Any information that depends on its future prospects may lead to a revised estimate of value. The fact that a knowledgeable trader is willing to buy or sell some quantity of a security or commodity at a particular price is bound to be information just of that sort. Offers to trade May this affect other offers. Prices may, therefore, both clear markets and covey information.

The dual role of prices has a number of implications. For example, it behooves the liquidity motivated trader to publicize his or her motives and thereby avoid an adverse effect on the market. Thus, an institution purchasing securities for a pension fund that intends, simply to hold a representative cross section of securities should make it clear that it does not consider the financial interments under priced. On the other hand, any firm trying to buy or sell al large number of shares that it considers wrongly underpriced should try to conceal its motives, its identity or both (and may try). Such attempts may be ineffective, however, as those asked to take the other side of such trades try very hard as you know to find out exactly what is going on and many do well succeed in these days of rapid communications and access to many sources of information succeed.

Most securities are sold in very standard ways which requires payment and electronic notification of delivery within the standard settlement period (standard is three Business as opposed to calendar days). On rare occasions, a sale may be made as a cash transaction requiring payment immediately on receipt. Sometimes as a reward or as in effect a marketing or sales promotion payment may be extended over a longer time period - usually 15, 30 or 60 days.

Sometimes in the case of new issues a payment extension period is also granted for the same reasons as above.

It would be extremely insufficient if every securities transaction had to end with a physical delivery of transfer of actual share certificates from seller to buyer. A brokerage firms might well sell 1000 shares of ABC Co. for one client. , Mr. Stevens to another client and later that day buy 1000 shares for Mr. Felon obtained by accepting delivery from her seller. Mr. Stevens's shares could be delivered to his buyer, and Mr. Felon's shares could be obtained by accepting delivery from her seller.

However, it would be much easier to transfer Mr. Steven's shares to Mr. Felon and instruct Felon's seller to deliver the 1000 shares directly to Mr. Steven's buyer.

This would be especially helpful if the brokerage firm's clients Mr. Felon and
As you can see valuation of your portfolio of stocks and securities are not always indicative of the true and exact value of your securities. Actual logistics, human emotion and even greed play major and ongoing roles.

Article Source : Pg. 174

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Both Roger Overanout & Bill Pikup are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Roger Overanout has sinced written about articles on various topics from Home Security, Home Schooling and Business and Finance. . Roger Overanout's top article generates over 201000 views. to your Favourites.

Bill Pikup has sinced written about articles on various topics from Hedge Funds of Funds, Health and Finances. William PikerSenior Job Placement and Employment AdvisorExperience in the financial fieldAce Employment Agencyhttp://www.winnipegjobshark.comhttp://www.aceemploymentservices.net. Bill Pikup's top article generates over 1000 views. to your Favourites.