Supply and demand play a fundamental role in determining stock prices. When demand for a stock increases, meaning more investors want to buy it, the price typically rises. This occurs because buyers are willing to pay more to acquire shares, especially if they believe the stock has strong future potential. On the other hand, if many shareholders want to sell a stock but there are few buyers, supply exceeds demand, leading to a drop in price.

This interaction creates the market price at any given moment. Supply represents the number of shares available for sale, while demand reflects the willingness of investors to purchase those shares at a specific price. Price adjusts to balance these forces.

News, earnings reports, interest rate changes, and global events can shift supply or demand. For example, positive earnings can boost demand, raising the price. Conversely, economic uncertainty may increase supply as investors sell off shares, lowering prices.

In short, the stock market operates as an auction, where prices are constantly influenced by the tug-of-war between buyers and sellers. Understanding this balance helps traders and investors anticipate price movements and make better-informed decisions in the market.