I've just noticed that many people are asking about supply and demand, especially now that the market is swinging high and low. In fact, what are the laws of supply and demand? What is demand? These are fundamental concepts that drive the prices of everything in the market—from stocks, gold, oil, to digital assets.

Simply put, demand is the desire to buy, while supply is the desire to sell. When more people want to buy, prices go up. When more people want to sell, prices go down. It’s that straightforward.

But to understand more deeply, you need to know that demand has an inverse relationship with price. If the price increases, the desire to buy decreases because when prices are high, our money’s value drops, making us able to buy less. Conversely, if prices fall, the desire to buy increases.

As for supply, it’s the opposite. If the price rises, sellers are willing to sell more because they get higher profits. If the price drops, sellers are less eager to sell because their profits decrease.

Currently, events in the Middle East, such as the situation in the Strait of Hormuz, are causing oil shortages—about 20% of the world's oil cannot pass through. This drastically reduces the supply of oil, but the demand for energy (demand) remains the same. The result is that oil prices spike rapidly due to the shortage. This is a perfect example of a supply shock.

In financial markets, this is more complex. The demand for stocks depends on many factors, such as interest rates. When interest rates are low, people tend to seek higher returns in the stock market. Other factors include economic conditions, investor confidence, or even news and information.

The supply of stocks depends on whether companies decide to issue more shares or buy back shares, new companies going public (IPO), or changes in market regulations.

The most important point is equilibrium. The actual market price is determined at the point where the demand and supply curves intersect. At this point, prices tend to be relatively stable because if prices go too high, sellers will sell more, but buyers will buy less, causing the price to adjust downward. Conversely, if prices are below equilibrium, buyers want to buy more, but sellers are reluctant to sell, leading to shortages and prices rising again.

Once we understand the laws of supply and demand, we can analyze stock prices. If stock prices fall, it might mean strong selling pressure; if prices rise, there’s strong buying interest.

A popular technique is the Demand Supply Zone, used to analyze price trends. When prices rally quickly and then pause in a base, if buying interest returns strongly, prices will break out higher (another rally). Conversely, if prices drop sharply and then pause, and selling interest returns strongly, prices will continue to fall.

Many traders use this technique because it clearly indicates entry points: buy when prices are about to break upward, sell when they’re about to break downward.

It’s also crucial to understand that demand and supply are not solely dependent on stock prices. They depend on whether people believe the company will grow. Good news increases demand; bad news increases supply (selling pressure).

In summary, the laws of supply and demand are fundamental to setting prices—whether for stocks, oil, or other assets. If you understand this well, you can analyze markets and make better investment decisions.

I keep following this topic and monitor various assets on Gate. If you’re interested in learning more, check out the prices and trends on Gate. It will help you see clearly how supply and demand work in practice.