Brief History Of The Stock Market
Wall Street can trace its name back to 1653. Originally it was set up for defense and not for commerce. Settlers of Dutch descent, who were always on the lookout from attacks by Native Americans and the British built a 12 foot stockade fence. Little did they know that this fence would go on to become the center of financial activity in the world. The wall lasted a good while, until 1685. At that point the wall was torn down and a new street was built. The British called it Wall Street.
What helped Wall Street rise to pre-eminence was the emergence of two great Stock Exchanges, which gave order to the chaotic trading and gave birth to the financial markets as we know them today.
Historically, the colonial government decided to finance the war by selling bonds, government notes promising to pay out at profit at a later date. Around the same time private banks began to raise money by issuing stocks, or shares of the company to raise their own money. This was a new market, and a new form of investing money, and a great scheme for the rich to get richer. A little further on the history timeline, more specifically in 1792, a meeting of twenty four large merchants resulted into a creation of a market known as the New York Stock Exchange(NYSE). At the meeting, the merchants agreed to meet daily on Wall Street to daily trade stocks and bonds.
Further in history, in the mid-1800s, United States was experiencing rapid growth. Companies needed funds to assist in expansion required to meet the new demand. Companies also realized that investors would be interested in buying stock, partial ownership in the company. History has shown that stocks have facilitated the expansion of the companies and the great potential of the recently founded stock market was becoming increasingly apparent to both the investors and the companies.
By 1900, millions of dollars worth of stocks were traded on the street market. In 1921, after twenty years of street trading, the stock market moved indoors.
History brought us the Industrial Revolution, which also played a role in changing the face of the stock market. New form of investing began to emerge when people started to realize that profits could be made by re-selling the stock to others who saw value in a company. This was the beginning of the secondary market, known also as the speculators market. This market was more volatile than before, because it was now fueled by highly subjective speculation about the company’s future.
In the early 1900s massive amounts of money were made on Wall Street. But the boom period could not be sustained indefinitely. And in 1929 this principle came front and center as the stock market crash of 1929 seared the national nay, global psyche and triggered what was to be called the Great Depression.
While many of the powers that be realized that the markets could not sustain a boom forever, very few publicized this view, choosing instead to let the market be its own judge, jury and executioner. As a result of the laissez-faire attitude, many people rich and poor alike lost a lot of money.
But the stock market crash of 1929 was just the beginning of sorrows for Wall Street. For while the economy eventually recovered from its catastrophic losses, the market excesses that had factored into the crash in the late 1920s seeped back into the picture. The result was the stock market crash of 1987, which saw the Dow Jones suffer what was the largest single-day loss in the stock market's history.
Since then, the government and the industry have tried to put measures in place to curtail, if not entirely eliminate, the possibility of such a large-scale crash. The stock markets are now an integral part of the global economy, and so proper safeguards to reduce the risks of another disastrous crash are necessary.
History books tell us that the reason the NYSE is so highly regarded among stock markets was primarily because they only trade in the very large and well-established companies. It acted as a more stable investment alternative, for people interested in throwing their capital into the stock market arena. The smaller companies making up the stock market formed into what eventually became the American Stock Exchange (AMEX). Contrary to the 80-year old history, today the NYSE, AMEX, NASDAQ and hundreds of other exchange markets make a significant contribution to the national and global economy.
The growth in the number of market participants led the government to decide that more regulation of the stock market was needed to protect those investing in stock. History was made in 1934, when following the Great Crash, Congress passed the Securities and Exchange Act. This act formed the Securities and Exchange Commission (SEC), which, through the rules set out by the act and succeeding amendments, regulates American stock market trading with the help of the exchanges. It also includes overseeing the requirements for a company to issue stock shares to the public and ensures that the company offers relevant information to potential investors. The SEC also oversees the daily actions of market exchanges and how they trade the securities offered.
Although historically, investing in stocks was a “hobby” for the rich, an average person too soon came to realize the value of the investing in stocks vs. traditional assets like land or a house.
Current Stock Market
The current "stock market" is comprised of 300,000 computers situated on pro trader's desks. These computers are networked together using sophisticated protocols. This level of information sharing makes pricing an almost exact science.
These 300,000 computers are further linked to another 26 million computers worldwide. These computers are located in banks, small businesses, and large corporations. These computers comprise the banking networks which make computerized transactions possible.
Finally, these computers are connected to another 300 million+ computers which connect and disconnect from the financial markets daily. In New York City alone, these transactions amount to over $2.2 trillion dollars daily