Question

How did markets first emerge? Give a detailed answer in two paragraphs.

Answer 1

The Idea of a Stock Market

A stock exchange or stock market is a physical or digital place where investors can buy and sell stock, or shares, in publicly traded companies. The price of each share is driven by supply and demand.

The more people want to buy shares, the higher the price goes. Less demand, and the price of a share drops. Stock markets now exist in most countries, but the first appeared in 17th century Amsterdam.

Invention of  the Stock Market

The first modern stock trading was created in Amsterdam when the Dutch East India Company was the first publicly traded company. To raise capital, the company decided to sell stock and pay dividends of the shares to investors. Then in 1611, the Amsterdam stock exchange was created. For many years, the only trading activity on the exchange was trading shares of the Dutch East India Company.

At this point, other countries began creating similar companies, and buying shares of stock was all the rage for investors. The excitement blinded most investors and they bought into any company that began available without investigating the organization. This resulted in financial instability, and eventually in 1720, investors became fearful and tried to sell all their shares in a hurry. No one was buying however, so the market crashed.

Another financial scandal followed in England shortly after— the South Sea Bubble. But even though the idea of a market crash concerned investors, they became accustomed to the idea of trading stocks.

Around the time of the official founding of the London Stock Exchange, the first securities became traded in the United States, by way of the Buttonwood Agreement of 1792. Government bonds were initially traded, along with the stock of a handful of banks.

As was the case in London, the precursor of the New York Stock Exchange got its start at a coffee house, but in this case they decided to rent out a dedicated trading space fairly early in their history.

This organization expanded during the early 19th century, to become the New York Stock and Exchange Board in 1817, later to be known as simply the New York Stock Exchange, or NYSE. The NYSE quickly became dominant among American stock markets.

In 1864, a new and strong competitor emerged on the scene, the Open Board of Stock Brokers was created, who offered a more modern system of financial trading and quickly grew to having almost as many members as the NYSE. The response from the NYSE was to merge with them 5 years later.

There are now several other major stock exchanges located in various parts of the world, in addition to many smaller exchanges. The top 10 in terms in order of market capitalization are the NYSE, the NASDAQ, the London Stock Exchange, the Japan Exchange Group, the Shanghai Stock Exchange, the Hong Kong Stock Exchange, Euronext, the Shenzhen Stock Exchange, the Toronto Stock Exchange, and the Deutsche Borse.