Financial market, where people invest there hard earned money (or easy earned money) in the hopes of gainning profit. But not all of them are lucky enough to gain a profit from there investments. Some face huge losses too.
Financial market is basically a market where people trade stocks, bonds or precious metals.
Now the prices of things in the financial market goes up or down. One wants to take this opportunity and buy something at some cost in hopes that its price will go up and he/she can sell this in a higher price, thus giving him/her profits. But the price can go down as well and make someone face loss too.
Now, the question I want to raiase is that why financial markets are so unstable? Why prices of things in financial markets face massive price swings but ordinary markets seems to be preety stable. But why? It has to do with crowd psychology, also known as mob psychology. So if you also want to know the reason , then keep reading because here comes the actuall explanation.
Now, you might know that prices of things are determined by the supply and demand mechanism. If the supply is higher and the demand is lower than the price will go down and if the supply is lower but the demand is higher than the price will go up.
In a normal market where we buy foods and other stuff, this is true. But...in financial markets there is another thing going on besides this mechanism.
Suppose, stock price of company x has increased by 20%. There can be a number of reassons why the price increased like great service, marketing success or other thinhs like this.But, once the price increases, it attracts more customers. Because the customers think that the price is going up so it might be a good investment. So...the demand of the stock increases, thus increasing its price even more. Now, how long will the price go up? At somepoint it will stop growing, there are many reassons why that can happen. When this happens, people starts to sell there stock because the price growth of the stock has stopped and no profits will come if they sell it later. When many people want to sell the stock of company x, its price lowers and making more people sell in the fear of loss. Like this, the price go all the way down, it might even decrease more than what it was in the first place.
Now...why this thing dosen't happen in the normal markets?
Becauase here the supply and demand ratio is preety stable. People just don't start buying 2x the potato they normally buy in a matter of days. And the suppliers know the demand and they produce the products according to it.
Now, the suppliers has to buy these potatos, right?
What if the price of potato suddently go up and suppliers start buying them more in the fear that the price might increase more and they should buy it now to prevent loss.
Usually supliers have big reserves of products so it dosen't happen.
But offcourse if any disaster happens that blocks the supply of the product then the demand will increse incresing its price and incresing its demand even more like what happens in a financial market. Situations like this do happen but there not that common like financial markets.
So the ultimate reason for the price swings of financial markets is the psychology thats working in peoples mind. If more people think something will yeld more profit, it will actually yeld more profit because it will have more investments thus increasing its price and yelding its investors more profit.
But at a regular market people don't buy things for easy profit thus making normal markets somewhat immune to massive price swings.
Psssst : This is the same reason that cryptocurrencys have massive price swings (except for stable coins, I guess.) because people use them to yeld profits like the financial markets. So even if cryptocurrency was invented for a day to day payment system and not something people would use to gain easy profits, some part of it has now become the part of the GREAT financial market.
This was my first article published in steemit so I can only hope you liked it.(no, I will not ask for upvotes😏).
For Your Information (FYI) : I didn't just searched the internet and copied some famous or random article, I used my brain power to figure out the reasson. This is also a reasson why this article is so bad (or is it?)
If you have any questions or siggestion please let me know in the comments.
And as always, thanks watching! {I mean, you read it, but you also watched the screen when you read it so...(this isn't have to be true for everyone, ok?)}
Peace.