Describe the factors that affect the demand for and supply of shares in UK companies.
The main determinants of whether the price of shares rise or fall are the forces of supply and demand. Basically, when many people are buying shares than selling then its price will shoot up since the share is more sought-after. Conversely when the supply exceeds the demand the price decreases – this is the law of demand and supply. It tries explaining the relationship between desire for a commodity and its availability. Ideally, when the demand is high and availability low the price of a good increases. The appeal and price of shares of UK companies appear to be influenced with factors such as economy’s health and company’s earnings but supply and demand is the real deal.
The implication of this is that those analysts might say that a stock is undervalued or overvalued; its worth will be determined by the market. The buyers and sellers are the key players. When the supply is limited and more buyers have moved into the market, the demand increases and the price of shares go up. Sometimes the supply and demand might be at equilibrium. In such a situation the price of shares moves around in a constricted range for some time, waiting for one of the factors to outweigh the other.
Other than price other factors that affect the supply of shares in UK organizations entail: sellers, company share issues, and share buybacks. When more investors are selling shares the supply grows.
Company share issues
Share issue can be defined as the act of a company releasing new shares to the public. Firms have a specific set time when their shares are made available for purchase. Since the number of shares in circulation is always limited companies will avail shares in plenty when investors are willing to buy at high prices.
It is when a business acquires back its shares from investors with the aim or reducing supply. Once this has happened shares are either cancelled or stopped from being redistributed in the future. The purpose of a share buyback is to lessen the number of shares circulating in the market.
These are the investors that push shares back into the market, hence increasing supply. Sellers will trade when they feel as though the stock is losing much of its value. The number of sellers in the UK market determines the supply of shares. When there are more buyers than sellers price rises and this encourages supply.
Factors that determine demand for shares
How prices of shares fluctuate have a significant impact on their demand. When the price hikes up buyers see the essence of purchasing stocks, hence the demand lowers. And when this happens companies are tasked with cutting on the price hoping the share’s value will stabilize.
Lowering the price shares in the UK market will increase demand, and the implication of this is that citizens now believe the product is of great value.
Advertisements on social media platforms, television, and radio have an impact on supply and demand. People are made aware of availability of shares through commercials. Stock is something that is sold at a certain time of the year (which is often ones per annum). It is therefore important to remind potential clients when a company is offering its shares for sale. In the UK businesses are competitive which pushes them to make their ads as appealing as possible. Alluring advertisement is likely to increase the demand of any given commodity.
The trends in an industry always have a tendency of deciding on the demand of companies products. When the shares industry is booming the demand of stocks increases.
Factors such as inflation, interest rate changes, and financial outlook affect the demand for shares. When the rate of interest is high shares tend to be expensive and this scare buyers aware (lessening demand). The same scenario occurs when the rate of inflation increases steadily.
Population growth is yet another factor that has impacted the demand and supply of shares in UK companies. When the population increases the diverse people try venturing into different businesses. In the midst of this some end up considering stocks market, hence influencing their demand and supply.
Economic data discloses a lot of details about the condition of the economy. When the economy is thriving than expected, it creates more demand for shares because better earnings are anticipated. An organization’s sales and profits have a substantial impact on demand for shares.
Usually people fear buying shares because of the misconception that they are not profitable to small entities. Some people fear investing in shares market because they thinking it is a gamble. Most companies are aware of this and have invested in creating aware among the public, to convince them that the buying and selling is a form of trade like any other.