A Little History of The Stock Market

The question is often asked by a beginner; what is the Stock Market and how does it work? I wonder weather the answer too this questions are surprisingly too simple. When the companies go public and offer shares in their company to the public and people buys the shares through what we know as the stock exchange.

Look back to its history and the origin of stock markets goes back a couple of centuries. The roots of stock markets are to be found at the beginnings of the Industrial Revolution that began in Europe about four centuries ago. Many of the pioneer merchants of the industrial age wanted to start huge businesses, which no single merchant could raise alone. It therefore became inevitable for them to come together, pool their savings and start these businesses as partners or co-owners. The contribution of each partner to the enterprise was to be represented by a unit of ownership. This was the precursor to what we call shares. And through this, ‘joint stock’ companies were born.

In early time, trading in shares began as informal ‘hawking’ in the streets of London. As the volume of shares increased with more companies floating shares; giving people opportunities to buy their shares, the need for an organized marketplace for the exchange of these shares escalated. As a result, these traders decided to be meeting at a coffee house, which they used as the marketplace. Eventually, they took over the coffeehouse and changed its name to Stock Exchange . This was in the year 1773, and the first, the London Stock Exchange, was founded. Financial intermediaries, something like; brokers, stock quote,fund managers, investment advisers investment banks etc and other instruments like bonds were then to follow suit as an inevitable consequence.

Investors, then use the stock exchange to buy and sell the stocks of the companies. Buying low and selling high can make people rich overnight. Of course you have to know what you are doing, and there are many factors involved. To gain a deeper understanding of how the stock market works, why don’t we discuss a few of the most common terms.

Learn From Basics

Any company if it is started, it needs a capital for its start up. All the money that is invested to start a business. Capital can be raised in two ways; one is by borrowing money, which will be paid back later. Second option is issuing stock to those, interested in sharing the profits of the company. By this we mean, people who buy the stock will help in the venture of the company in return of which they will have a share in the profits the company makes.

By issuing stock, the company can raise more capital and it does not have to bear the interest as in case of repayment of debt. But one of the disadvantages involved in issuing stock is that shareholders share the company ownership and have a say in deciding the company policies. To make it simple, the price that a specific stock sells for. This price is set by many market factors including the economy health, current trading trends, and technical and financial reports put out by the company or independent third party.

Stockbrokers match up those who want to sell with those who want to buy stocks. When the bid/buy price matches the offer/sell price, a transaction can occur. Stock market is where you buy and sell stocks during market hours. It is called a market because of the vast selections. People at the exchange/market on the floor do all the buying and selling for all the brokers who then issue the shares to their customers orders or sells. Now with computers the transactions are fast. Before it would take some time when brokers would use pens and note pads.

Do not worry, the stock market is not that hard to understand. First let us discuss a market. A market is where goods and/or services are bought and sold. Think of a supermarket. At the local supermarket, food and other goods are bought and sold. In the stock market, stocks are bought and sold, instead of food. When you own stock, you own part of a company, this is referred to as equity. When you own stock in a corporation, you have equity in that corporation.

How do investors use the Stock Trading Online to increase their wealth? Let us have a quick look at the fundamentals behind the stock market and then you will never again have to ask how does the it work. When you turn on the television and watch the news or when you open up a newspaper, you probably read and hear all about the stock market. You’ve probably heard about people making a lot and losing a lot of money, but how does it work?

It is not that hard to understand the stock market because it’s not that complicated. What is a market? A market is where goods or services are bought and sold, just like a supermarket where food is bought and sold. Many first-time investors buy shares, watch them fall, and then sell out at a loss, disappointed and disillusioned. Although many books have been written on the different strategies employed to help investors know when to buy and when to sell out of shares, even the experts get it wrong.

A lot of companies and business establishments regularly pronounced the opening of shares making it available to a large number of investors through the Stock Exchange. These investors in turn, would do business using the stock exchange as medium in buying and selling stocks of different companies. This is basically how the stock works and is deemed complicated to people who don’t have first hand experience on the said trade. Therefore, it would be a requisite to know the basics and essentials of the stock market. This comes with a thorough knowledge and at great length understanding of how does it work.

Labels: Stock Market, Buy Stocks, Stock Exchange

This entry was posted on Monday, April 20th, 2009 at 3:39 pm and is filed under Stock Market. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.