1: supply definitions
2: how supply works
3: supply vs stock
4: example of supply
Opening information:
The supply means measurements of the balance between the buyer and seller. but the buyers and sellers are not the controllers of the supply, instead, their activities or behavior of buying and selling something control the supply on the market.
Now this article contains information about what is supply, how supply works in the stock market what is the difference between supply and stock, and finally the example of supply.
1: supply definitions
There are oceans around the world, the oceans contain billions and trillions of fish around the world. Fish is the regular food for people around the world. If humans ate any finish they could able to consume the calories.
The calories are the one which helps the human body to live healthy and survive in the world. But the most important thing is if you eat any fish you could able to gave calories and fulfill the hunger in your stomach.
But the matter is, do people eat any fish Because of getting calories into the body? , does people perceive every fish Price are same as selling the fish in the market?
That’s where the supply came into the market, if a fisherman could able to find any type of fish easily and it’s highly delivered to the market, then it’s considered normal fish.
Its prices are normal and could be able to buy by any normal and middle-class people. Then the particular fish are perceived as not highly valuable in the people’s eye.
Because of the high supply, consumers of the fish would be able to get this fish as easily as possible at any time because of low demand.
On the other hand, another type of fish is hard to find and even if the fish comes to the market, its benefits and calories are very low for people.
But it is perceived as a highly valuable fish, even if the fish is not beautiful, because of low supply and hard to find this kind of fish in the entire ocean.
So people perceive the value of something based on how the certain item is available to them, if any of the items are available to them then it’s called a high supply and if any of the items are available to them less then it’s called a low supply.
Or if the item is available to them equally based on the consumer needs then it is determined as supply balanced. Now let’s have a look at how this supply applies to the stock market.
2: how supply works
Every Publicly traded industry goal is to sell their shares of stock to the general public at very high prices as much as possible.
But any industry cannot control any Investor behavior. If investors wish and they can afford to pay a fair price for the stocks, the industry gets the money for the shares of stock.
When the companies issue the stock to public Investors through the stock exchange after the completion of the Initial Public Offering (IPO)
The price of the stocks is determined by how the Public investors are willing to buy the industry stock.
If the majority of the shareholders are willing to sell the shares after the purchase, the stock price would go very low because of the high supply of shares suddenly sold.
If the majority of the investors aren’t willing to sell their shares in the company it increases the share price because of the low supply of shares in certain industries.
People are confused about the stock and supply work in the stock market, so let’s understand the key differences.
3: supply vs stock market
Stock is not supplied, the stock is the real piece of ownership of shares of the specific company.
Using these ownership shares of stocks, the investors buy and sell this security of ownership among them.
The availability or delivery of the shares to Investors is a supply in the stock market.
So the Key difference between the supply and stocks is ownership of shares, and the balance of availability between the stock and investor is a supply. To make you more clear about supply let’s dive into the one example.
4: example of supply
Say company F issued the 100 shares to the general public. With each price of 5 dollars.
The 80 shares are bought by Investors and the $5 shares are trading at 6 dollars now.
when the 90 shares were sold in the market After two months the shares are trading at 9 dollars, with 5 shares remaining on the market.
If anyone wants to buy stock of Company F, they want to pay 9 dollars per share instead of 5 dollars because of less availability of shares which is low supply.
After 5 months, the shares are trading at 7 dollars again because Investors sold the 10 shares on the market. Now the 15 shares are available to the Investor because of more than low availability of shares which is more than low supply.
Moreover, one year, a total of 100 shares were sold but the price is still trading at $7 because company F issued 100 more shares again. Totally 200 shares were issued 100 shares only purchased and the remaining 100 shares are available in the market.
This increase and decrease in supply are determined by the market price.
Market rule: #100190
Supply is one of the main market rules, which is unavoidable because without supply it’s impossible to run the whole operation of the stock market. Make sure you always align to this market rule.
If your investors are not comfortable or align investing with based on market rules please learn about how to regulate your investments under your control with the use of Rule investing.