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How Stock Prices Move

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The price of a stock fluctuates according to supply and demand, investor confidence, world events and information about company profits, among other factors. Since there are only so many shares of a stock on the market at a given time, the price will rise if there are more buyers trying to get it than sellers hawking it. The reverse is also true; if there are more sellers than buyers, sellers will lower their prices to account for that.

Experts caution investors to be careful when trading stocks during moments of big price peaks. As an example, stocks like GameStop Corp. (GME) and AMC Entertainment Holdings Inc. (AMC) rose sharply in January 2021 after individual investors drove up prices on companies that were heavily shorted. This compelled traders with short positions to buy more stock in an effort to mitigate their losses, triggering a frenzy that drove up prices even higher. Now, as those trades lose momentum, experts remind investors that volatile prices are risky.

With all the variables in play, it’s notoriously hard to know which stocks are on the rise. It’s a good idea to be suspicious of any “hot tips” or guarantees of astronomical returns. If it sounds too good to be true, it probably is.

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