Stock Market Education
People have come together in markets since the dawn of commerce. Every small town would have a location where merchants set up shop and sold their wares. If you wanted an apple, you only had to present yourself at the stall that sold apples and pay your money. If you didn't want to go to the stall yourself, you could hire a middleman, or broker, to go there on your behalf. The owner of the stall did not necessarily have to be there either. The merchant might hire someone to mind the stall on his or her behalf, another broker, so to speak.
Now you have a situation where neither of the principals to the transaction are present. The actual transaction is taking place at a location, or 'venue', removed from the principals and the trade is being carried out by two proxies, or 'brokers'. The object of all this attention, the apple, will physically change hands and be delivered to the new owner. All that is needed then, is a venue for the trade to take place in, two brokers to carry it out and some object which is the focus of the trade.
Stock exchanges are no different and are in fact, just modern day versions of village markets, allowing individuals to buy and sell shares in companies through brokers.
When apples were the objects of trade, there was not a great difficulty in transferring the goods. They were simply loaded onto a cart and carried away. However, when individuals started to trade ownership of companies, share certificates needed to be drafted to provide a tangible record of ownership. What's more, share certificates would not rot, like an apple and hence became a preferred vehicle to trade money and make profits.
As trading flourished, more space and more organisation was required. Brokers banded together and pooled their money to form the early stock exchanges. Such founding brokers were said to have a 'seat' on the exchange and later entrants would need to come up with the required cash to obtain such a seat and have the right to trade on the premises.
The first North American exchange was established in Philadelphia in the 18th century. The New York Stock Exchange began trading in 1817. 12 years later, in 1829, the first Australian-based operation started up. The first recognisable stock exchange in Australia was the Melbourne-based Brokers' Association in 1859, to be followed by similar organisations in the other states. It wasn't until 1987 that the six state-based exchanges combined to form the Australian Stock Exchange (ASX).
The member brokers and their employees would gather on the floor of the exchange and call out their offerings. With the advent of the telegraph and later the telephone, brokers could take orders from a long distance, without postal delays. Newspapers began to carry trading results and stock trading picked up. The exchange formed a natural focal point for investors and traders to see what was on offer. Brokers made their money from commissions on stock transactions and it was in their interest to have lots of stock to sell. Companies had that stock and it was in the companies' interest to have access to capital from new investors. If those companies 'listed' with the exchange, they could provide the stock-in-trade the brokers needed and the brokers could in turn act as go-betweens with the investors and traders to provide the companies with the capital they required.
These days the stock market has evolved into a global network of highly liquid and vibrant market places, all of which can be accessed virtually instantaneously through online brokers such as Spectrum Live
To find out more about stock market trading strategies, attend one of our FREE stock market education workshops.