A stock market, which can also sometimes be reffered to as an equity market, is a network of different economic transactions, known as the aggregation of both sellers and buyers. What it isn’t, is a physical being. The sellers and buyers trade stocks. Stocks are securities which exist on a stock exchange, although some can also be traded privately.
History of the Stock Market
It was in 12th century France that the ‘Courretiers de change’ took on the task of managing and regulating agricultural communities debt. This was on behalf of the french banks of that time. This group of men traded the debts and became known as first brokers. In the thirteenth century a common misconception arose in Bruges. Commodity traders started to meet in a house that was owned by a gentleman named Van der Beurze, and so later, in 1409l, this group became known as ‘Brugse Beurse’. This was the formalised, and even institutionalised a meeting that had previously been known as an informal gathering. In actual fact, those meetings took place in a building in the city of Antwerp that was owned by Van der Beurze. Most merchants of that time undertook their trading in the city of Antwerp. This idea spread across the region of Flanders very quickly, and also in neighbouring countries, and soon in the cites of Ghent and Rotterdam ‘Beurzen’ soon opened.
It was in the middle of the thirteenth century in Venice, that bankers started to trade in government securities. It was soon outlawed in 1351, by the government of Venice spreading stories. The idea behind this was to decreased the cost of Venetian government funds. In the large cities of Italy, including Pisa, Genoa, Florence and Verona, bankers started to trade, again with government securities. This happened around the fourteenth century. What allowed this trading to happen was that these cities were not ruled by a duke, but they were independent states in their own right. These states were ruled by an elected citizen council. Businesses and organisations in Italy were also the the first to sell shares on the stock market. It was not until the sixteenth century that businesses in the United Kingdom were able to sell shares. Many other countries then followed.
The first joint-stock company was the Dutch East India country that was formed in 1602. A joint-stock company is an organisation in which stakes can be purchased and sold by shareholders. A shareholder may own a proportion of the business depending on how many shares they purchase. A certificate of ownership is issued to the shareholder detailing the proportion of shares held in the company. The Dutch East India company was the first to get fixed capital stock, and so company stock was continuously traded on Amsterdam Stock Exchange. It was not long after this happened that other trade followed, in different derivatives, came into being on the Amsterdam market. Something known as short selling also occurred. This is where securities that are not currently owned by anyone are attempted to be sold. This, however, was soon seen as illegal and was banned in 1610 by the authorities.
Today, there are stock markets all over the world, in both those countries that are both developed, and developing. The most well known stock markets, and the worlds largest are in the United States of America, as well as in the United Kingdom, China, Canada, India, Japan, Germany, France, Netherlands and South Korea.
The importance of stock market
It is one of the main ways that businesses and other organisations raise money. Stock markets enable companies to be traded publicly, and so raise capital to expand their business. The liquid nature of the stock exchange allows those who invest to easily buy and sell their securities. This is a particularly attractive feature to investors.
Over time, the cost of shares have been studied, and it has been realised that the price are an important economic indicator, and can indicate current social mood. Usually, the stock market is seen to be the most important indicator of a nations economic development and current strength. When share prices are rising, for example, this is seen as increased investment in business and indicates a rising economy.