Understanding stock market performance

Trying to make sense of the performance of stockmarkets from daily media updates can be a confusing exercise. Up 25 points one day, down 18 the next - it can often seem a completely random and unpredictable system.

Shares listed on stockmarkets represent real companies. As the value and demand for these company shares increases so does their price. When an index is said to be trading up or down by a number of points, this relates to the total increase or decrease in the value of the company shares it includes.

What affects the price of shares?

Share prices reflect a company's earnings and the dividends it pays, which can be affected by different factors. Some are obvious, such as the impact of a rising oil price on airlines; or more open to interpretation and conjecture, such as the impact of a new competitor entering the market, or new legislation.

It's worth remembering that unless you have invested in a tracker fund, rises or falls in an index may not reflect the performance of your own investments, as some sectors may not be represented in the index. Check the performance of the fund for a true picture.