Supply and Demand and the Stock Market

Stock Market Alert!

What is a Stock?

"The law of supply and demand is more important than all the analyst opinions on Wall Street." 

-William J. O'Neil-

Stock, what is a stock?, it is a partial ownership of a business or company. Companies typically start their business as a private venture. So when are the stocks used in companies? When companies are in need to raise money for their benefit, they often sell part of their business for to the public. With the buyers and sellers in the market buyers come and ask for a specific price and a specific number of shares so that they can have nice circulating cycle of stocking with other companies. However, not all the shares that the company is allowed to issue are sold. So these shares are called the public float. And the shares in treasury are not traded and do not affect the supply and demand for a company's stock. But the company reserves the right to sell some or all of these shares in the future through another public offering. In some companies these business' are called thinly traded. They may go days without any transactions taking place. Also called as illiquid. Others are heavily traded. Major corporations fall into this category and the reason is that the companies usually can not opt to buy or sell "at the market," meaning they have to accurate about the stock trading rules. To conclude in the definition of stocking in the are of economics in the real world, supply and demand are felt in the stock market in a very real bidding war by buyers and sellers negotiating transactions. So the key to success is to understand the flow of economics.
The Economics of the Stock Market
Basically, the image of the stock is determined by the ability the company has to bring for their benefits. However, the process of bringing forth benefit to one's company is very difficult and it has different and changed opinions that change the stock prices and allow companies to consider buy or selling their products. These process have same laws in demand and supply. Therefore, if the supply goes up (shifts to the right), the value of the stock will fall, all other things being equal. If the supply drops, the price goes up. On the other hand, when the stocks become more attractive to investors the demand increases, and when the investors lose interest, the demand falls and so do the prices.
There are some factors in that affect the supply and demand for stocks:

Supply

1. If a new share offering is conducted to raise additional capital, this increases the supply of shares on the market.
2. If employee stock options are granted, this has the potential to increase the supply of shares when the options are exercised.
3. If a company has a stock split, this increases the supply of shares on the market.
4. If a company buys back its shares and cancels them (called a normal course issuer bid), the supply of shares decreases.
5. If a major shareholder liquidates a major portion of his or her personal shares, this has the effect of increasing the supply of shares on the market, though strictly speaking, these shares were already part of the public float.

Demand

1. Demand for a stock is affected by a number of factors:If profits reported are greater than expected, demand increases.
2. If profits reported are less than expected, demand decreases.
3. If the company is not profitable, expectations of profit are what drives demand.
4. Sales are also drivers of demand. Important new contracts will send demand up while shortfalls in sales will send demand down.
5. The company’s debt load can affect demand. If the company takes on too much debt, demand could fall if the public believes the debt to be unmanageable.
6. News about a company can change the demand for its shares. Good news increases demand. Bad news lowers demand. 
7. Mass psychology can play a huge role in demand. Individual stocks as well as whole markets can move quickly if there is a general belief among investors that the stock or the market will go up or down even if there is no rational basis for such movement. Extreme movements to the upside are called bubbles. Extreme movements to the downside are called panic selling.
8. Mass psychology is characterized by the concepts of fear and greed. These can be augmented by real life events unrelated to the market. 

An interesting fact is that every change in price and volume represent shifts in supply and demand and the setting of new equilibrium levels. Through these new equilibrium levels it tells the companies the great deals about the make-up of the mass of buyers and sellers in a particular stock market. But why do they change? it is because the buyers and sellers themselves are also a factor in a mix.