Published On: Thu, Sep 29th, 2016

The History of Stock Trading: Where It All Began

Although the concept of trading debts and government securities can be traced as far back as 12th century France, the fact of the matter is that the stock markets as we now know them are relatively modern. Whether referring to next gen trading systems or the lightning-fast execution of a position within the Forex industry, the fact of the matter is that the traditional principle of turning a profit based upon the underlying value of an asset has remained relatively the same. Let’s take a look at how past history impacts the markets of the 21st century.

What was the First Company Listed on the Stock Market?

Most sources consider the first publicly traded firm to be the Dutch East India Company. As voyages to India and the far corners of the globe were quite risky in the 1600s, this firm chose to utilize what is now commonly referred to as a limited liability approach to profits and losses. As each investor shared a portion of the risk, he or she would also enjoy a percentage of the profits. In 1602, the Dutch East India Company listed on the Amsterdam Stock Exchange and began openly trading. 

photo/ См. ниже via wikimedia commons

photo/ См. ниже via wikimedia commons

The Evolution of the Bulls and the Bears

If there is one immutable fact about the markets, it is that they can be as unpredictable as a wild animal. This is thought to be the reason for the development of the terms “bull” and “bear”. It is interesting to note that these animals attack their prey in different ways. A bull will raise its head and horns in an upward movement; tossing its victim into the air. A bear tends to swipe down atop its prey with its large paws before pouncing. The majority of financial historians believe that these movements were then associated with the rises and falls of the markets over the years. 

The Relationship Between the Markets and the Great Depression

What goes up can and will come down. This was the painful lesson learned by countless investors who believed that “happy days are here again”. On 29 October 1929 (Black Tuesday), the dreams of millions came to a grinding halt and would arguably remain this way until the beginning of World War 2.

Although numerous causes such as a decline in overall income and decreased government spending were contributing factors, one of the most recognized problems was buying on margin within the markets.

Traders could purchase a security for as little as ten per cent of its aggregate value. In theory, they could (and did) make massive gains. This was assuming that the markets continued to rise as they had in the past. By 1928, the value of the stocks themselves was seen as being higher than the net worth of the companies. When the bullish times faded away, many margin traders lost more than their initial investments. This caused a massive sell-off within the markets and a run on the banks. 

Other Interesting Historical Stock Market Facts

Many traders are unaware that the New York Stock Exchange can be traced as far back as 1792 with the famous “Buttonwood Agreement” and that Wall Street actually derives its name from a large wall that was intended to protect settlers from attacks by local Native American tribes.

Interestingly enough, the largest one-day drop in the value of the markets did not occur during the Great Depression. On the contrary, the most massive loss took place on 19 October (Black Monday) 1987. The Dow Jones Industrial Average lost 22.61 per cent (508 points) of its total value.
Author: Pankaj Deb

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