What is Driving the Price?

Beginner • Course 2

When looking at the chart or checking the historical performance of investments, we can see the price continuously moves. There is no doubt that beginners will question the reason the price is moving and what is causing the movement.

No worries, we have you covered!

The Supply and Demand Theory

One of the main reasons is supply and demand, but there is more to this theory than simply higher demand results in an upward trend. There are also other influential factors, such as investors' confidence, economic performance and price trends. This may not sound easy, but we will break it up nice and easy in this brief course.

It is also important to note that the force driving the price may differ from one asset to another. For example, influencing factors for indices are likely to differ from Crude Oil, but before we dive deeper, let's start with the basics.

Understanding supply and demand and the equilibrium price is a good place to start. However, as investors gain more experience and understanding, investors can look into order flow and volumes.

Supply and demand is a theory that states that the more supply, the less individuals are willing to pay for an asset. At the same time, investors are willing to pay more if the asset is low in supply and hard to obtain. Additionally, the higher the demand, the more support for the price.

The Equilibrium Price

The equilibrium price is the asset's price when the supply equals the demand. For example, the price of Oil is at $58 while the economy requires 1 million barrels of oil this year, and oil companies have 1 million in storage. This would be the equilibrium price, which is the closest to the asset's true value.

Though, the question still remains as to what can cause a change in the supply and demand chain, but do not worry, this we will cover in the course.

Take the course quiz

Derivatives are complex instruments and come with a high risk of losing money due to leverage. You should consider whether you understand how derivatives work and whether you can afford to take the risk of losing your money

NAGA is a trademark of The NAGA Group AG, a German based FinTech company publicly listed on the Frankfurt Stock Exchange | WKN: A161NR | ISIN: DE000A161NR7.

The website is owned by The NAGA Group AG and operated by NAGA Capital Ltd which is authorised and regulated by the Financial Services Authority Seychelles (FSA) under licence No. SD026. The registered address of CT House, Office 9A, 2nd Floor, Providence, Mahe, Seychelles.
Tel: +2482574498

The group also includes NAGA Global (CY) Ltd, with registered address at Nikokreontos 2, NICE DREAM, 6th floor, Flat/Office 601, 1066, Nicosia, Cyprus. NAGA Global (CY) Ltd is wholly owned by The NAGA Group AG.

RISK WARNING: Derivatives are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how derivatives work and whether you can afford to take the high risk of losing your money. This is not investment advice. Trading with NAGA Trader by following and/or copying or replicating the trades of other traders involves high levels of risks, even when following and/or copying or replicating the Lead Traders. Such risks include the risk that you may be following/copying the trading decisions of possibly inexperienced/unprofessional traders, or traders whose ultimate purpose or intention, or financial status may differ from yours. Before making an investment decision, you should rely on your own assessment of the person making the trading decisions and the terms of all the legal documentation.

Restricted countries: NAGA Capital Ltd does not provide services for the residents of certain countries, such as Afghanistan, Albania, American Samoa, Anguilla, Australia, Austria, Barbados, Belarus, Belgium, Bermuda, British Indian Ocean Territory, Bulgaria, Burkina Faso, Canada, Cayman Islands, Central African Republic, Christmas Island, Cocos (Keeling) Islands, Congo, The Democratic Republic of the, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Falkland Islands (Malvinas), Finland, France, Germany, Gibraltar, Greece, Guam, Haiti, Heard Island and McDonald Islands, Hungary, Iceland, Iran, Islamic Republic of, Ireland, Isle of Man, Israel, Italy, Jamaica, Japan, Jersey, Korea, Democratic People's Republic of, Latvia, Libyan Arab Jamahiriya, Liechtenstein, Lithuania, Luxembourg, Mali, Malta, Montserrat, Mozambique, Myanmar, Netherlands, New Zealand, Norfolk Island, Norway, Palestinian Territory, Occupied, Pitcairn, Poland, Portugal, Romania, Russian Federation, Saint Helena, Ascension and Tristan Da Cunha, San Marino, Senegal, Serbia, Slovakia, Slovenia, Somalia, South Georgia and the South Sandwich Islands, South Sudan, Spain, Sri Lanka, Sweden, Switzerland, Syrian Arab Republic, Trinidad and Tobago, Tunisia, Turks and Caicos Islands, Uganda, Ukraine, United Kingdom and any other countries where the citizens have British proof of identity (i.e. British Virgin Island, Gibraltar, Isle of Man etc.), United States, U.S. Minor Islands, Vanuatu, Virgin Islands, British, Virgin Islands, U.S., Yemen, and Zimbabwe.