Shares

Why do share prices move?

Share prices may stay fairly stable for months, or move rapidly. The amount a share fluctuates is known as its volatility.

There are a number of factors that influence volatility:

Supply and demand
If more people want to buy a share than sell it, the price will rise because the share is more sought-after (in short, the 'demand' outstrips the ‘supply’). Conversely, if supply is greater than demand then the price will fall.

Earnings
This is the profit a company makes. If the earnings are better than expected, the share price generally rises. If the earnings disappoint, the share price is likely to fall.

Sentiment
Perhaps the most complex and important factor in a share price. Share prices generally react most strongly to expectations of the company’s future performance. These expectations are built on any number of factors, such as upcoming industry legislation, public faith in the company’s management team, or the general health of the economy.

Bids and offers

In shares trading, the price you pay if you buy a share is called the offer price, and the price you receive if you sell the share is called the bid price.

The offer price is always higher than the bid price, so it is the job of the stock exchange to facilitate buying and selling by coordinating these two prices.

The difference between the bid and offer price is called the spread. The size of the spread is a fairly reliable measure of the liquidity of that share: the narrower the spread, the more liquid the share is likely to be.

As prices constantly fluctuate, when you place a market order you might not know exactly what price you'll pay or receive unless you place a specific stop or limit order.