History of The Stock Market
Stock markets make up some world’s most important areas of today’s global economy. Globally, all nations depend on stock markets for their economic growth.
Humans have been trading for thousands of years so in that respect the stock markets are fairly new compared to the age of trade prices.
As they developed than their role in economics grew with more importance until you see who it has evolved in for today economy as they have become a major force in the modern day.
The Early Markets
The very first stock Market can be traced back to the 1500s although many other examples of what was forming were around beforehand.
One example of this was In the 1100s when France developed a system where courtiers de change were responsible for managing agricultural debts throughout France on behalf of banks. Many saw this as one of the first acts of brokerage as people were trading debts.
The merchants of Venice a few centuries later were credited with the trading of government securities around the 13th century. This was quickly followed by bankers in other Italian cities such as Verona, Genoa, Pisa, and Florence which were situated nearby also trading government securities.
The First Stock Markets
The first stock markets can be linked back to Belgium cities; Bruges, Flanders, Ghent, and Rotterdam in Holland as they hosted their own “stock” market systems in the 1400s and 1500s.
However, it’s mainly accepted than the City of Antwerp had the first official first stock market system. During than time Antwerp was the main center of commerce in Belgium and was the home and base of a very influential family called the “Van der Beurze family. Due to the influence of this family early shares were often called Beurzen!
The only problem was in these early days of stock markets was there was no stocks to actually trade! Even so, the foundations and institutions developed over 500 years ago still resemble modern day stock markets.
As there was not any trading of company shares to do business with, instead traders and the markets dealt with Government affairs, businesses, and individual debt. Although the systems and structure resembled modern stock markets the properties of trade were totally different.
The First Publicly Traded Company
The world’s first publicly traded company was the East India Company, this company is recognized as the world’s first publically traded company. The reason why it became so was Risk.
By sailing to and from far away lands in treacherous conditions was extremely risky so when the East Indies was first discovered to be full of riches and trade opportunities, there was of course a rush of merchants and explorers to the islands but due to the dangerous conditions a lot of cargo sent by merchants never made it home and so many merchants lost huge profits because of it and some of their lives. Enter Bankers and financiers who quickly discovered than they could do something to alleviate the risk.
In 1600 the East India Company was formed through a corporation calling itself
“Governor and Company of Merchants of London trading with the East Indies”.
And so the first company to use a limited liability was formed.
The First Public Company
Investors soon realized than if they kept putting all their “eggs into one basket” it would end up not being the wisest of moves to make when approaching investments in East Indies trading.
For example, if a ship was returning from the East Indies and it had a survival rate of 30% because it runs the high risk of being lost in a storm along the route home or had the chance of being intercepted by pirates.
Instead of an investor investing in just one voyage and risk losing the whole amount of his/her invested money, investors were given the opportunity to purchase shares in multiple companies.
Now even if then one ship with only a 30% survival rate was lost then its losses were not with one individual but would be with 3 or 4 invested companies, this way the investor would still make a profit.
This new formula proved to be very successful for investors who invested in ships on the East India route and Within 10 years many similar charters had been granted to other businesses throughout Northern Europe. Four main powers being England, France, Belgium, and the Netherlands.
The Dutch East India Company, therefore, became official! In 1602, it became the world’s first publically traded company. This was triggered when the company released shares of the company on the Amsterdam Stock Exchange.
The Stocks and also bonds were issued for people to buy and each investor who bought them was then entitled to a fixed percentage of East India Company’s profits.
The First Trading Floors
The trading floors or the Pit as it was called in The London Stock Exchange were very different at the start of Stock Markets. Before all the yelling across those modern ere trade floors and the constant rain order forms being thrown in the air, business was actually conducted in coffee shops!
The early trading floors were done in Coffee shops with Trades neatly handwritten on sheets of paper. Investors traded in a much calmer manner with other investors over a coffee it seems!
Coffee shops were the first real trading floors and the reason being that it evolved this way was due to the fact then this is where investors began to congregate for an order of business and I suspect another business was discussed their before shares were traded, however, this is where markets started.
As buying and selling of stocks grew, eventually it was decided I expect by authorities to set up a proper marketplace for investors to conduct business more efficiently and with more structure, hence the term Exchange was an appropriate name for a marketplace than traded in stocks.
The First Spike
In the early days of stock markets, it was not fully understood how important the stock market would be or become as it developed. People started to realize than the stock market was getting more powerful and of course more valuable, but in the early years no one could truly comprehend just how valuable and important it would become.
In those early days there was a limited rule and as it grew in popularity it became very unruly and chaotic. In London, for example, a new company could open overnight and start issuing new stocks and shares for a wild new venture and many times over these companies could make thousands of pounds even before a single vessel had departed from the harbor.
Because of the lack of regulations preventing this type of procedure and also few ways to recognize legitimate companies from bogus companies, the bubble quickly burst and Companies than stopped paying dividends out to their investors and as a result of these activities, this actually leads to the government of England at the time banning any shares being issued until 1825!
The first stock exchange
Despite the Government of England issuing the ban on shares, The London Stock Exchange was officially formed in 1801, however, due to the ban, it was limited as companies were not allowed to issue shares still prior to 1825. This, in essence, made the London Stock Exchange a very limited exchange and so prevented the London Stock Exchange from becoming a true global power within the industry.
The New York Stock Exchange (NYSE) was opened in 1817 and because of the ban in London, made New York Exchange a very important development in history.
The New York Stock Exchange (NYSE) started to trade stocks from the very first day it opened and has continued to do so however the New York Stock Exchange was not actually the first Stock Exchange in the United States of America. This title actually goes to the Philadelphia Stock Exchange which holds then the title. The New York Stock Exchange (NYSE) did very quickly become the most powerful stock exchange in the United States. This was due to the limited amount of domestic competition within the country and also its position and stature at the very heart of the United States trade and economics in New York.
The London Stock Exchange was regarded as the main stock market for Europe just as it’s opposite the New York Stock Exchange was the main exchange for the United States and the world.
Stock Markets Today
After the London Stock Exchange and New York Stock Exchange were first created in the early part of the 19th Century, nearly every country around the world has its own Stock Market in the developed world with the majority becoming established in the 19th and 20th centuries with many becoming major centers. All major economic powers in the world now have highly developed stock markets.
If you look at Canada, they first developed a stock exchange in 1861 and then the exchange is the largest in the country and also the 3rd largest in North America when compared to the market capitalization.
The Stock Exchange also includes businesses than are based in Canada but also businesses situated around the rest of the world.
The Stock Exchange in question is the Toronto Stock Exchange – TSX, as it is known, TSX has a very high market cap ans one reason is than TSX hosts the most oil and gas companies for any stock exchange operating around the globe.
Surprise Stock Exchange Venues
You will even find Stock Exchanges in countries you least expect it! There are markets in countries such as Iraq than has been ravaged by war in the last decade.
The Iraq Stock Exchange, however, does not host many publicly-traded companies, although it is ideal for investors from other countries to invest in. Funnily enough, the Iraqui Stock Exchange was one of a few stock markets unaffected by the economy that was not affected by the crash of 2008.
Stock markets have extreme importance around the globe and stock markets are all round the world. Every day without you realizing it trillions of dollars are being traded on the stock markets and thousands of traders can trade even from their own homes now thanks to the internet. It is the driving force of the world’s capitalism.
The New York Stock Exchange
It dominated the world economy for nearly 300 years without a lot of competition until then is the 1970s when a new market emerged.
The first serious challenger opened In 1971. Two organizations are known as – “The National Association of Securities Dealers and The Financial Industry Regulatory Authority” merged to create the NASDAQ stock exchange.
NASDAQ is and has always maintained a different structure from traditional stock exchanges than evolved over hundreds of years as these traditional markets had a physical location but NASDAQ has no location as it is all held in a virtual network of computers. Trades are performed electronically with no physical activity necessary.
This gave NASDAQ a major advantage over traditional stock markets as electronically operated trades gave NASDAQ some major benefits,
The most important being than it reduced the bid to ask spread along with trades being done a lot faster. This resulted in other exchanges such as New York to become more inventive and also we have seen expansions because of this from both exchanges.
New York Stock Exchange merged with Euronext in 2007, to create NYSE Euronext. This was the very first transatlantic stock exchange in the world and brought the industry closer together.
Dow Jones and Major indices
The Dow Jones Industrial Average is probably the most important index in the world today and makes up an important part of modern stock markets.
Charles Dow, who also co-founded Dow Jones & Company and Wall Street Journal editor created the Dow Jones index along with other indices along with Edward Jones who was a well-known investor in his own right.
First published in 1885 as Dow averages and was made up of 30 Large American companies that were publicly owned. They all played a vital part of the American economy during this time. The main areas of the companies were heavy industry and this is why it became known as the “Industrial Average.”
Today you will find many well-known companies listed under this index and also they have very little to do with heavy industry than the index was originally published for.
Dow Jones index adds and removes companies throughout the many years of operation in order to reflect their influence on the U.S. economy.
Some companies you will find on the Dow Jones Index today are well-known companies such as:
- Goldman Sachs
- General Electric
- American Express
The list has some wealthiest and most powerful companies in America with General Electric being the longest-running company on the index to date.
General Electric was added to the index 1907 and is also the only original company to remain on the list. Companies that were recently removed include Hewlett-Packard and the Bank of America who lost their Index status on 2013.
There are other major stock indices such as FTSE100, NASDAQ Composite, the S&P 500, Russell 2000, Nikkei, Eurostoxx 50.
Stock Market Crashes
Unfortunetaly Stock market crashes will always happen as they are a nasty side effect of the market.
There are not many major stock markets than have not gone through a crash at some point their history. With some still remembered decades or almost centuries later.
Stock market crashes can happen when stock speculations are stretched far beyond the actual valuations of the actual stock but normally following major crashes, it is followed by economic bubbles.
There have been some memorable crashes than history remembers more than others with the first being in the 1920’s:
Black Thursday or Terrible Thursday of 1929, this was followed by Black Monday and Black Tuesday. The Dow Jones index lost 50% of its value during this crash which sent America and much of the world into a deep economic depression wiping out billions of dollars, with a few traders committing suicide as well. This is known as the Great Depression in American history.
Other major stock market crashes include:
- Stock Market Crash of 1973-1974
- Black Monday of 1987
- Dot-com Bubble of 2000
The other memorable crash for me was the crash of 2008. This stock market crash of 2008 occurred on September 29, 2008.
The Dow Jones index was caused to plummet due to Congress rejecting the bank bailout bill. Although the stresses than led to this crash had been building for many months and this was the trigger which caused a drop of 777.68 points in intra-day trading. This was the largest drop in points Until 2018.
The 1929 crash still remains the worst crash because if the knock in effects it had for the public especially in America however it did cause double digit percentage losses around the world.
1987 Black Monday
The 1987 stock market crash was the first major crash of the computerized age of trading. Ironically this crash had no signs that it was building or there was no major news announcements prior to the crash or world events and just happened.
The cause for the 1987 crash has its origins in Hong Kong, The market fell by 45.5% between the 19th and 31st October and by the end of the month, other major stock markets globally had all experienced collapses in the double-digit areas with Australia having a 42% which was double the loss of the United States and Canada who both suffered losses of 23% approx.
In order to prevent major crashes in the future, The New York Stock Exchange created a method called the single stock circuit breaker.
This was created in 2012 and monitors the Dow Jones Index. If it was to drop by a specific number of points in a specific period then this would trigger the circuit breaker and will automatically halt trading.
This system is designed to attempt to reduce the likelihood of future major crashes and to limit the amount of damage to the world’s economy when a crash occurs.
Other circuit breakers are also now in place in other exchanges. In Chicago, the Mercantile Exchange and in Canada, both have circuit breakers in place.
The guidelines for circuit breakers used by New York and Chicago give information as to how long trading will cease for:
- 10% drop: If the drop occurs before 2 pm, trading will close for one hour. If the drop occurs between 2 pm and 2:30 pm, then trading will close for one half-hour. If the drop occurs after 2:30pm, than the market stays open.
- 20% drop: If the drop occurs before 1pm, then the market halts for two hours. If the drop occurs between 1 pm and 2 pm, then the market closes for one hour. If the drop occurs after 2 pm, then the market is closed for the day.
- 30% drop: No matter what time of day a 30% drop occurs, the market closes for the day.”
Do Stock Markets Close?
Each Stock Market has its own trading hours and normally markets open between 9am and 10 am and close around 4pm to 5pm. Because there are Stock Markets open all over the world their is always a Market to trade in. The NYSE, NASDAQ, TSX, and Shanghai Stock Exchange all open at 9:30 in their perspective time zones.
There are stock markets than break for lunch as well but there are only a few such as the 4 major Asian Stock markets than close for up to 1 hour to 1.5 hours at midday.
Those markets are the Tokyo Stock Exchange, Hong Kong Stock Exchange, Shanghai Stock Exchange, and the Shenzhen Stock Exchange.
There are also markets that will close due to national holidays as various countries around the world celebrate different days of the year, for example, public holidays in one country will not stop a market trading in another country so will still be open to trade on.
The Top 10 stock markets in the world
Ten of the largest stock markets in the world at present today can show us the changing roles of various countries throughout history as their roles as world economic powers. Today, the top 10 list includes markets in highly-developed countries, we can also see developing parts of Asia also have markets on the list.
Here are the top 10 stock markets in the world today:
- New York Stock Exchange
- Tokyo Stock Exchange
- London Stock Exchange Group
- Hong Kong Stock Exchange
- Shanghai Stock Exchange
- Toronto Stock Exchange
- Frankfurt Stock Exchange
- Australian Securities Exchange
Exchanges based in Sao Paulo, Brazil and Bombay in India are a few of the growing Stock Markets outside of the top ten.
Stock markets have been around in some form or another for 500 years or more and will not be disappearing anytime soon as this industry is driving force behind the world’s economy and the economies of in every country in the world.
Experts cannot tell us what the future holds for this industry but I am sure it will continue to evolve as time goes on. it is worth however to consider that the New York Stock Exchange remains the Largest and perhaps still the most powerful exchange. Its market capitalization is actually larger than London, Tokyo and NASDAQ combined.
It is more than likely we will see more Stock Markets merge together in the future, there have even been predictions than there could end up being one single global stock market and although this sounds a sensible idea it is one that will probably be the unlikeliest to happen.
Stock Markets will always remain an important part of the world’s economy which is not likely to change in the near or far future.
I hoped you liked my article on the history of the stock market and while we can all play at Wall Street, serious money can be lost and lives ruined if you do not know how to trade.
I would love to see your opinions on this post or if you have anything to add if you do then please comment below.
For any entrepreneurs reading this check out my other posts as their maybe something of interest to you!