Why do prices change?
A market price reflects the prices at which buyers and sellers are willing to trade. When new orders arrive, existing orders change, or market participants react to new information, the price of an asset may move.
A price increase does not mean that every trader is buying, and a price decrease does not mean that every trader is selling. Each completed trade has both a buyer and a seller.
Four factors that influence prices
Buying Pressure
When buyers are more eager to purchase than sellers are to sell at current prices, buyers may offer higher prices to complete their trades.
Selling Pressure
When sellers are more eager to sell than buyers are to buy at current prices, sellers may accept lower prices to find buyers.
Supply and Demand
Prices emerge from the interaction between buyers and sellers. Changes in demand, available supply, and expectations can influence the price at which trades occur.
News and Expectations
Economic reports, company results, interest-rate decisions, and unexpected events can change what market participants expect about an asset.
Understanding bid, ask, and spread
In many markets, quotes include a bid price and an ask price. These help describe the prices currently available to trade.
- Bid: The highest displayed price a buyer is currently offering.
- Ask: The lowest displayed price a seller is currently asking.
- Spread: The difference between the ask price and the bid price.
Simple example
Suppose a stock has a bid of $49.95 and an ask of $50.00. The spread is $0.05 per share. Actual execution prices may differ as quotes and market conditions change.
How to read a candlestick
A candlestick summarizes price movement over a selected period, such as one minute, one hour, or one day. Each candle typically shows four prices:
- Open: The first price recorded for the period.
- High: The highest price reached during the period.
- Low: The lowest price reached during the period.
- Close: The final price recorded for the period.
On many charts, a candle that closes above its opening price is shown in one colour, while a candle that closes below its opening price is shown in another. Colours vary by chart settings.
What beginners should remember
Price movements can be influenced by many interacting factors. A chart shows what prices have done, but it cannot guarantee what prices will do next.
Learn to observe price movement without assuming that every rise or fall will continue. Practice reading charts before risking real money.
Beginner tip
Before studying trading strategies, practice identifying the open, high, low, and close on a few historical candlesticks. Focus on understanding the information, not predicting the next move.
Understanding Financial Markets
Review the different markets and assets traders may encounter.