How the economy affects the stock market

The economy and stock market are closely linked. If you want to become a successful investor in the stock market, you must have at least elementary knowledge economy. This understanding will be critical to your success, as it affects the economy in many ways the stock market as well as individual actions.

It will also be important to monitor the news and information about specific companies and sectors, as well as events that happen in the world. Through understanding of basic economic concepts it will be possible, through the information that you will read in the newspapers and the news on TV, understanding what is applicable and what is not will be in the current and future investments.

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The stock market is notorious for reacting (and overreacting!) To news and events that happen around the world. The challenge for investors will be to see if the news about the market have actually nothing to do with your specific investment! For example, a crisis in the oil-rich Middle East will have more of an effect on the shares of oil companies and the price of gasoline!

Supply and demand

Two of the most important concepts in economics are the laws of supply and demand. The offer relates to what will be available, while the question refers to the price that people are willing to pay for something. Supply and demand determine the stock market rules and influence (sometimes dramatically!) Stock prices. If investors want to buy shares of a company and are willing to pay more for these, the price of these shares will go up. If investors are selling shares of a company and there are not enough buyers, the cost of the shares will fall.

You may also like to read another article on Tradenligne: 10 basic tips to start trading in Forex

Cause and effect

The law “cause and effect,” says that for every effect there is a cause. This translates, in the stock market, in the financial and corporate news that will have a direct effect on the value of the shares and the company’s state of health. If a particular sector will perform poorly, it could also indicate that the industry or sector will be set up on a long-term vision and then it will be advisable to buy shares in this area because it could lead to great benefits in the future. Look, then, industries with high growth potential.

There are some warning signs that may indicate a potential increase in the share price of a company. An investor should then look for positive news about a company that is on its major shareholders, as well as the negative news about a competitor.

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