The stock market is one of the most essential aspects of the global economy today. For economic growth, countries all around the world rely on stock markets. Stock markets, on the other hand, are a comparatively recent phenomenon. They haven’t always had a significant impact on global economies. Today, I’ll discuss the History Of Stock Markets and why it has evolved into the driving economic force that it is today.
Early stock and commodity markets
The first true stock exchanges did not appear until the 1500s. There were, however, many early examples of marketplaces that resembled stock markets. In the 1100s, for example, France had a system in place where courtiers de change administered agricultural loans on behalf of banks across the country. Because the men essentially swapped loans, this can be considered the first important example of brokerage. Later, as early as the 13th century, Venetian merchants were credited with dealing with government securities. Soon after, bankers in Pisa, Verona, Genoa, and Florence in adjacent Italy began trading government securities.
History Of Stock Markets
The world’s first stock markets
The origins of the world’s earliest stock exchanges can typically be traced back to Belgium. In the 1400s and 1500s, the Dutch cities of Bruges, Flanders, Ghent, and Rotterdam all had their own “stock” market systems. However, it is widely acknowledged that Antwerp was home to the world’s first stock exchange system. Antwerp was Belgium’s commercial capital and home to the powerful Van der Beurze family. As a result, early stock exchanges were commonly referred to as Beurzen. One thing was absent from all of these early stock markets: stocks.
Despite the architecture and organizations resembling today’s stock exchanges, no one was really exchanging firm shares. Instead, the markets dealt with the affairs of government, businesses, and individual debt. The system and organization was similar, although the actual properties being traded were different.
The world’s first publically traded company
The East India Firm is largely regarded as the first publicly listed company in the world. The East India Firm became the first publicly listed company for one simple reason: risk. Simply put, any one corporation could not afford to sail to the furthest reaches of the globe. Explorers traveled to the East Indies in droves when it was revealed to be a haven of riches and trading possibilities.
Unfortunately, only a small percentage of these journeys made it back to shore. Ships were missing, riches were spent, and bankers understood they needed to take action to reduce the danger. As a result, in 1600, the “Governor and Company of Merchants of London dealing with the East Indies” was established. This was the famous East India Company and it was the first company to use a limited liability formula.
Investors learned that placing all of their “eggs in one basket” when it came to East Indies trade was a bad idea. Assume a ship returning from the East Indies has a 33% probability of being captured by pirates. Rather than investing in a single cruise and risking losing all of their money, investors might buy stock in many firms. Even if one ship out of three or four funded firms was lost, the investor would still benefit.
The formula proved to be quite effective. Similar charters were issued to additional firms in England, France, Belgium, and the Netherlands within a decade. When the Dutch East India Firm issued shares on the Amsterdam Stock Exchange in 1602, it became the first publicly listed company in the world. Investors were given stocks and bonds, and each received a specified proportion of the East India Company’s profits.
The first stock exchange
The London Stock Exchange was established in 1801 notwithstanding the prohibition on issuing shares. This was a very restricted exchange because firms were not authorized to issue shares until 1825. The London Stock Exchange was unable to prevent the emergence of a truly worldwide powerhouse as a result of this. That is why the establishment of the New York Stock Exchange (NYSE) in 1817 was such a significant historical event. Since its inception, the NYSE has traded equities.
The NYSE was not the first stock exchange in the United States, contrary to popular belief. That honor belongs to the Philadelphia Stock Exchange. However, due to a lack of local competition and its location in New York at the heart of US commerce and economy, the NYSE quickly became the most dominant stock exchange in the country. The London Stock Exchange was Europe’s principal stock exchange, while the New York Stock Exchange was America’s and the world’s main stock exchange.
Modern stock markets
Almost every country in the world now has its own stock exchange. Major stock exchanges in the developed world mainly originated in the 19th and 20th centuries, shortly after the London Stock Exchange and the New York Stock Exchange were founded. All of the world’s main economic powers, from Switzerland to Japan, have well-developed stock markets that are still functioning today. In 1861, Canada, for example, established its first stock market. By market capitalization, that stock exchange is the largest in Canada and the third largest in North America. It contains companies from Canada as well as the rest of the world.
The Toronto Stock Exchange, or TSX, has more oil and gas businesses than any other stock exchange in the world, which is one of the reasons for its large market capitalization. Even war-torn countries, such as Iraq, have stock exchanges. Although the Iraq Stock Exchange has a small number of publicly listed firms, it is open to overseas investors. It was also one of the few stock markets that remained unscathed by the 2008 financial crisis.
The New York Stock Exchange, which had dominated the global economy for over three decades, faced its first real threat in the 1970s. The NASDAQ stock exchange was founded in 1971 by two organizations: the National Association of Securities Dealers and the Financial Industry Regulatory Authority. NASDAQ has never been structured like a regular stock exchange. Instead of having a physical presence, NASDAQ, for example, is totally run on a network of computers, with all exchanges taking place electronically.
The NASDAQ had a few significant advantages over the competition because to electronic trading. First and foremost, it narrowed the bid-ask spread. The competition between Nasdaq and the NYSE has pushed both exchanges to innovate and grow throughout the years. For example, in 2007, the NYSE and Euronext combined to become NYSE Euronext, the world’s first transatlantic stock exchange.