The stock market may feel complicated and vague to operate in. This is especially true when you consider how stock trading for beginners may not work out in their favor. This is why it’s recommended that you study a few online trading training courses before stepping into the market.
Trading mentors can help you identify the best trade opportunities, which can significantly increase your profitability as a trader and reduce losses. But before you learn to trade stocks, it’s important to know where it all started to realize the market’s significance and growth.
Let’s discuss everything important about the stock market, its origin, and memorable historical events that made it the market we know today.
The Idea of The Stock Market
The stock exchange was developed to be a digital or physical space where traders invest in shares or stocks of publicly traded companies. The pieces of every share are driven by supply and demand. This means that the more people buy these shares, the higher the price for those shares.
On the contrary, the less a share is sold, its price will also be less. Today, stock markets are in the majority of the countries across the globe, but the market first emerged in Amsterdam during the 17th century.
Major Historical Events in Brief
Belgium, which used to be called Antwerp became the center of international trade back in the late 1400s. Merchants would come here to buy the goods anticipating a price spike to earn profits. Later in 1611, the very first modern stock trading system was developed in Amsterdam.
The very first publicly-traded company stock was from the Dutch East India Company. It stayed public for several years as the only company with exchange and trading activities. Afterward, in 1700 a group of merchants signed a Buttonwood Tree Agreement where the men would buy and sell bonds and stocks daily, which came from the NYSE. At the beginning of 1790, Philadelphia Stock Exchange was formed, which helped the development of the USA’s financial industries and its expansion in the west.
The Dow Jones Industrial Average was created in 1896 and initially consisted of 12 components that were industrial organizations. The US stock market crashed after an entire decade of the “Roaring 20s” when the prices were inflated because of leveraging in 1929. Later in 1941, S&P was introduced. However, trading began on the US stock exchange in 1971 with the introduction of Nasdaq.
The First Stocks
Trading goods can date back to ancient civilizations. In the earliest times, businesses combined finances to take a ship across the sea and reach other continents or countries. Individuals or trading groups usually executed the transactions.
During the Middle Ages, the merchants would assemble in town to exchange goods from across the globe. What’s more, as the merchants were from various countries, establishing a money exchange became necessary.
Belgium or Antwerp at the time became the international trading center, and merchants would buy goods at certain prices, expecting them to rise. Anyone who required funds would borrow them from wealthy merchants at high rates. The merchants would also sell bonds that were backed by interest rates.
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The World’s First Stock Market
What started in Antwerp was soon innovated and improved in Amsterdam in 1611 when the Dutch East India Company began to trade their stocks publicly. The company did this for raising capital and decided to pay dividends on their stocks to every investor. For several years, this was the only company publicly traded on Amsterdam’s stock exchange.
Other companies also took a similar approach, and investors started to buy even more stocks. However, some investors were blinded by the idea of dividends and didn’t research the company they were investing in. As a result, in 1720, the investors started to sell all their shares impulsively. As no one was buying any stocks or shares, the market crashed.
Another worth mentioning scandal involves England after the South Sea Bubble. Even when the market crashed and the investors were concerned, the idea of trading stocks was already established for the future.
The US Stock Market
While the first stock market was started in Amsterdam, the US incorporated the idea of stock markets in the late 1700s. This happened when the group of merchants developed the Buttonwood Tree Agreement. Under this agreement, the merchants would meet every day to sell and purchase stocks which ultimately became the origin of the NYSE.
The Buttonwood merchants were considered the creators of the biggest stock exchange in America, the Philadelphia Stock Exchange. This was the US’s first-ever stock exchange that was founded in 1790 and had a major impact on the development of financial institutions throughout the US.
Trading began in 1971 on another stock exchange in America called Nasdaq. Later in 1992, Nasdaq was merged with the International Stock Exchange which was based in London. This merger also became the world’s first intercontinental securities market.
While the NYSE was a physical stock exchange, Nasdaq had the option to sell and purchase stocks through a network of computers. What’s more, the NYSE and Nasdaq were also able to buy and sell stocks on the American Stock Exchange or stock exchanges present in other regions. These regions include San Francisco, Boston, and Philadelphia.
Further Developments in The US Stock Market
The Buttonwood merchants visited the merchants in Philadelphia to mimic a similar exchange model. This created the New York Stock and Exchange Board in 1817.
All the members had a defined dress code and had to earn their seats in the exchange. They also had to pay a fee of $25, which was raised to $100 in 1837. Following the events of the Great Fire in 1835, which wiped out about 700 buildings in the Lower Manhattan area, Wall Street incurred significant property losses.
However, Samuel Morse initiated a telegraph which allowed traders to remotely communicate with each other. Later in 1903, the NYSE opened its doors to several hundreds of stocks that were kept safe in underground vaults.
The stock market came back on its feet and grew about 50% high in 1928, even with the indications of an economic crisis. However, it dropped by 11% in 1929 due to the event called Black Thursday. This made traders panic selling the stocks, which caused a market crash and caused the Great Depression.
Ever since then, the NYSE has experienced various crashes, including the subprime mortgage crash of 2008. However, it’s important to realize that the foundation of the NYSE was established just by some trade merchants centuries ago. All the regulators, traders, and companies have heavily contributed to making them famous globally.
The NYSE is the largest stock market right now. The stock trades range from international to domestic levels. These also include exchanges with the Tokyo stock exchange and the London stock exchange. Some other prominent stock exchange markets are situated in South Korea, France, Germany, Canada, India, and China.
Stock Market Indexes
When studying the stock market, you may have heard about indexes named S&P 500 and Dow Jones Industrial Average. The two indexes are the most popular benchmarks that determine the performance of the whole economy or the market.
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Charles Dow and Edward Jones came up with the Dow Jones Industrial Average back in 1896. This index included oil, tobacco, sugar, railroad operators, and gas companies. The stocks with a higher price per share influenced the index more than lower-priced stocks. The index was designed to serve as a representation of the economy.
Nowadays, several other industries are also included in this index, including consumer companies, financial companies, technology, healthcare, and more. General Electric was one of the original members of Dow. Proctor & Gamble was added to the index in 1932, which is in the benchmark to date.
On the other hand, the S&P 500 was developed by Henry Barnum Poor’s company in 1923. The index began tracking about 90 stocks back in 1926. However, the S&P was found as a result of the company’s merger Standard Statistics.
The S&P 500 is more of a weighted-cap weighted index. This means that if the company’s market value is greater, its influence is greater. The market cap and market value will be calculated by multiplying the price per share by the total outstanding shares. Both the S&P 500 and Russell 2000 have become major indicators for traders to invest in stocks even more than the Dow Jones Industrial Average.
Stock Market Cycles
Stock markets can fluctuate on any given day, and the US market has gone through major shifts in its history. The market has gone through significant movements that expanded and affected the market over days or even years.
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The trading cycles for a stock market include accumulation, mark-up, distribution, and mark-down phase.
The first phase occurs when the market prices are low and traders start purchasing the stocks in greater quantities. The second phase is the mark-up where buyers will further increase the prices of the stocks as more and more buyers start purchasing them.
The distribution phase creates a mixed sentiment among the buyers and in the mark-down phase, the pieces will fall.
Over the centuries until the modern-day, markets that exist continuously evolve, and exchanges never stop. Nowadays, traders and retail investors can purchase stocks and shares for companies that can be traded publicly through a stockbroker. The shares can also hold bundles of diverse stocks rather than shares of a single company.
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