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Supply
and Demand
There's an old saying
that a share is only worth what somebody is willing to
pay for it. And that's true - buyers determine the price
of a share. As investors gain new information, they
decide how much they are willing to pay more for a
share. Their changing perceptions cause share prices to
rise or fall. The price of a share is no different to
any other product or service. It is determined by supply
and demand.
The supply of shares is
based on the number of shares a company has issued, or
sold to the public. The more that people desire to own a
share, the more they are willing to pay for it. High
demand for a share pushes up its price. Then as the
value of a share increases, owners are more reluctant to
sell it. The rise continues until prospective buyers
decide the price has gone too high. Then fewer people
are willing to buy the share at the high price.
Shareowners who are anxious to sell must then lower the
price at which they are willing to sell and the share's
price falls until investors believe the share is again
worth the price at which owners are willing to sell.
Next:
A Company's Financial Health
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