History of the Stock Market

The stock market was not the sophisticated, worldwide trading exchanges of today. The first exchange, in fact, did not even include stocks and predates their existence. The exchange was located in Antwerp, Belgium, and was a site for trades as early as 1531 where traders and merchants would gather to exchange debts and securities from businesses, governments and individuals.

In the 1600s, sea voyages were rampant, and merchants who travelled for the possibility of riches faced high risks in every journey. To minimise the risks, merchants would find investors for each voyage they undertook and split the profits with them at the end of the voyage, dissolving the temporary 'company'.

That changed with the founding of the East India trading companies, which held charters from the British, Dutch, and French governments. These companies completely changed the way companies were formed. Instead of paying out for individual voyages, the companies would pay dividends based on the profit from all of the voyages the company took. Investors were given physical share certificates, and the modern stock company was born. The idea was so successful that the selling of shares spread to other maritime powers, and eventually, the practice found its way to England.

As the volume of shares increased, the need for an organised marketplace to exchange these shares became necessary. As a result, stock traders decided to meet at a London coffeehouse, which they used as a marketplace. Eventually, they took over the coffeehouse, and in 1773, the London Stock Exchange was founded. The idea made its way to America with the Philadelphia Stock Exchange opening in 1790.

The London Stock Exchange encountered complications with the lack of regulation and inability to distinguish legitimate companies from illegitimate companies. As a result, the stock market bubble quickly burst. Companies stopped paying dividends to investors and the government of England banned the issuing of shares until 1825.

The formation of the New York Stock Exchange (NYSE) quickly outgrew its Philadelphia counterpart, becoming the most powerful stock exchange in the country. Its growth is due to the lack of any type of domestic competition and its positioning at the centre of U.S. trade and economics in New York, as well as the base for many banks. The stock market was born, and exchanges sprang up around the world.

The New York Stock Exchange faced its first legitimate challenger in 1971 when two organisations, the National Association of Securities Dealers and Financial Industry Regulatory Authority, created the NASDAQ stock exchange. Instead of having a physical location, NASDAQ is held entirely on a network of computers and all trades are performed electronically, giving it major advantages over the competition.

Today, virtually every country in the world has its own stock market. In the developed world, major stock markets emerged in the 19th and 20th centuries soon after the London Stock Exchange and New York Stock Exchange. From Switzerland to Japan, all of the world’s major economic powers have highly developed stock markets, which are still active today.

Every day, trillions of dollars are traded on stock markets around the world, each market supplying the necessary capital to support industry growth. In addition, the stock markets create personal wealth and financial stability through private investment, allowing individuals to fund their retirement and or other ventures.