Stock prices are constantly changing, especially stocks that trade hundreds of millions of shares in a single day.
Every second the stock price is changing, but why? What causes sudden fluctuations in a stock's price? The answer to this is very simple and it all has to do with supply and demand of the stock.
The supply of a stock is the number of shares offered at any given moment and the demand of a stock is the number of shares investors are willing to buy at the exact same time.
Let's say for example that good news about a company was just released on the morning news.
The demand for the company's stock will jump because investors know that the company is worth investing in.
However, the demands of the investors don't meet the supply of the sellers.
This will cause the price to go up because of the increased demand.
People cannot just automatically buy stock because for every share bought there was a share sold.
In our example, let's say that there is a demand for 1000 shares but only 500 shares are being sold at the time.
Since there is more demand than supply this will cause the price to rise.
With the rise in stock price, more people who own the stock will be more likely to sell it.
This is how the stock reaches equilibrium (1000 shares demanded = 1000 shares sold).
When a share price decreases, just the opposite is happening.
In stead of 1000 shares demanded and only 500 shares selling, there would be 1000 shares waiting to be sold and only 500 shares demanded.
This will cause the share price to decline and investors will then be more likely to buy the stock at a lower price to fulfill all of the sellers.