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What is Driving the Price?
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.
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