Why Do Prices Change? Understanding Supply and Demand in Trading

Knowing why the prices change will always be important in any trading world. The price of stocks, currency, or commodities does not stay constant for too long. Sometimes they change very rapidly while at other times, very slowly. But an ultimate reason behind the fluctuation in prices is again the law of supply and demand.

Supply and demand are the fundamental drivers behind every price swing that you will ever see through MetaTrader 4. So, when more people want to buy than sell, the price goes up. But here’s the interesting thing: the price goes down when more people want to sell than they do to buy. Let’s dive in a bit further:

Supply refers to the quantity of an asset available in the market. Demand is how much the buyers are willing to pay for it. These two forces interact constantly. If, all of a sudden, the shares of a company became popular because of some new product their demand increases. Therefore, the larger the buyers, the more willing to pay a higher price to get some action. Thus, the price increases.

Conversely, if the market believes that there is a negative shift in the future of some particular asset that can be a currency pair or a commodity, then demand for that asset goes down. There are not so many people who would want to buy it, and those holding it might even want to sell it off. High supply resulting from low demand pushes the price downwards.

Those are happening in real time on platforms like MetaTrader 4 when you use them to trade. Whether buying or selling stocks, forex, or commodities, this all works with-in the realms of supply and demand forces that clash in the market. It’s shown in the charts what’s happening as these forces come into play.

For example, take the price of oil. A geopolitics event in one of the oil superpower countries could cause this: a disruption in a supply chain might influence the rate at which the oil could flow in, and this might become difficult to attain. The traders then buy it ready for the following next likely thing to happen after the event occurs, the price rise. Now, the value for oil shoots even higher as result of high demand. If it is announced that new oil reserve has been discovered, its supply increases and the price decreases because of anticipation that more oil will be available.

Market sentiment is the other supply and demand factor. Traders, especially MetaTrader 4 traders, are always reacting to news and events. It could be an economic report, a government announcement, or a company’s quarterly earnings. These events can shift the perceived value of an asset in an instant, creating either a demand surge or a supply glut.

The two forces, supply and demand have one thing in common: they often do not predict how the market will be. In forecasting, the trader may rely on indicators or historical data to predict trends; however, at the end of it all, human decisions, emotions, and reactions determine the market. The more knowledgeable the trader is, the more he/she can predict the behavior of the market, which is why this demo trading is critical for first-time users.

You will see how supply and demand functions dictate the direction of price on MetaTrader 4 in real-time. Every trade that you make is adding to the sellers and the buyers in an on-going cycle of which is changing the way the market conditions are functioning. This dynamic interaction between the buyers and the sellers will decide whether that currency pair or stock goes higher or lower at any moment.

So, though prices are a function of a million factors, it all boils down to supply and demand. And it is this bane-blessing combination that gives a trading life all its excitement, challenge, and sometimes even pain. Learning how these forces interplay will help you better with the decisions you would make while trading, especially as you gain experience and move toward real money trading.