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history of the stock market

Updated on March 9, 2008

The History Of The Stock Market

Stock market history goes back a surprisingly long way. The stock market is actually represented by many markets, more properly called exchanges, and each has its own tale of how it came to be. The origin of stocks and securities is at least four centuries old, as evidenced by the oldest share certificate known, which was issued in 1606 for a Dutch company formed in 1602, which imported spices from Asia. Even before the Napoleonic Wars, the maritime empires of the Netherlands and Portugal would have been the centre of trade, followed later by France, Spain and England.

England took the lead in developing commerce, as its empire grew, and as the Royal Navy dominated the high seas. The London Stock Exchange grew out of traders meeting in a coffee house at the end of the 17th century. In 1761, a group of 150 stock brokers formed a club for the purpose of share dealing, which led to them erecting their own building just 12 years later. Soon afterwards, they adopted the name “The Stock Exchange”, and in 1801, formal membership was instigated, and the first regulated stock exchange was formed. In 1986, the market was deregulated, which took away the face-to-face contact and shifted the trading to computers and telephones. It also authorized dropping the minimum commission rates, which allowed price competition.

The idea of trading stocks came to America with the early English colonists, and the birth of the United States saw the expansion of economic power. In fact, it was Alexander Hamilton, who became the first US Secretary of the Treasury, who advocated stock exchanges, believing that they were essential to a healthy and thriving economy. This is why his statue is prominent in the financial district of New York, by Wall Street.

The federal government issued bonds in 1790, to refinance the Revolutionary War debt of $80 million, and this marked the birth of the American investment markets. In 1792 brokers met and agreed to trade securities on a commission basis. The war of 1812 caused the issue of more securities, including bank and insurance stocks, and by 1817 rules and a constitution were adopted.

On the other hand, in recent times you may have heard the name NASDAQ mentioned when trading is discussed. This stock exchange began in 1971, and has no trading floor, instead operating a large electronic screen in Times Square. This meant that it started as a "bulletin board" for stocks, a totally different concept to that of the New York Stock Exchange, whose modus operandi is to have people, called specialists, conduct continuous auctions in each stock. Nowadays, we might call the NASDAQ the first "virtual" stock exchange. In 1999, the NASDAQ passed the New York Stock Exchange in daily trading volume.

Although the stock market as a whole has traditionally been reserved when it comes to adopting modern technology, the power of the Internet and computers has infiltrated most exchanges, and there is far less reliance on people to keep the markets functioning. The future of stock trading will become increasingly accessible and automated by the implementation of ECNs, or Electronics Communications Networks. In fact, such developments have spawned a whole new breed of investors, who find that they can make a living by day trading from home.

This same informational power has also encouraged and enabled increased personal interest in becoming a shareholder. The advent of online brokers, who facilitate the buying and selling of shares and securities, has completely changed the face of the typical investor. Individuals can now buy the number of shares that they can afford, however few that may be, whereas the traditional buyers from pension funds and investment houses would deal in large blocks of shares. Of course, this means that the individual investor is also responsible for selecting the appropriate stocks and timing the buying and selling of them to maximize his profits, and to assist in learning how to do this, there are many trading programs available. The best of these are again online, and use the power of technology to provide personal coaching.

The level of support that you can expect varies, as does the detail and technicality of the programs. You can start with a free trading program, such as that offered by www.insightsupport.com, and if you find that you want to pursue trading, you can go on to subscribe to a paid program, many of which feature personalized service and ongoing support and feedback.

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