Chartered Institute of Stockbrokers (CISI) Professional Practice Exam 2025 – 400 Free Practice Questions to Pass the Exam

The term "supply and demand" in stock trading primarily refers to the balance between the availability of stocks and investors' desire to buy those stocks. When demand for a stock increases and outpaces its supply, this typically leads to a rise in the stock's price, as more investors are competing to buy the limited shares available. Conversely, if there is a surplus of a stock in the market and demand decreases, the price will often fall as sellers lower their prices to attract buyers.

Understanding supply and demand is fundamental to grasping market dynamics. For instance, new information about a company, changes in the broader economic environment, or shifts in investor sentiment can all impact the demand for a stock, while the supply side can be affected by actions such as company stock buybacks or new share issuances.

The other options address different aspects of the financial markets but do not capture the core meaning or significance of supply and demand in stock trading. While external economic factors can influence stock prices, they do not define the fundamental concept of supply and demand itself. Government regulation might impact price control but is not directly linked to the basic mechanics of supply and demand. Similarly, while the volume of transactions in the futures market might relate to overall market activity, it does not