Stock Market 101
If you're already comfortable with investing, feel free to skip ahead. But if you enjoy a little historical perspective and a fun fact or two, this section is for you.
Stock market is a generic term that refers to a financial marketplace where the buying and selling of shares - or ownership stakes - in publicly traded companies takes place. You read that right – owning shares of a company means you own a small percentage of it.
A stock market, then, provides a platform for companies to raise money, or capital, by issuing stock and for investors to buy and sell their shares of that stock. The stock market serves as a platform where existing owners can sell their shares to other investors or even buy newly offered shares. Prices of stocks are determined by supply and demand dynamics, as well as other factors affecting the financial performance and outlook of companies.
Investors participate in the stock market with the aim of capital appreciation, dividends or other financial objectives. The stock market is a key component of the broader financial system and plays a crucial role in the functioning of the economy.
Currently there are three stock markets that operate in the United States, and you’ve probably heard of two of them: The New York Stock Exchange and the NASDAQ Stock Market. The third, Cboe Global Markets, is known more for options trading but also operates stock exchanges.
The first structured stock market in the world can be traced back to Amsterdam in the 1600’s. The Dutch East India Company is widely known as the first publicly traded company. For years, they were the only company on the exchange until other businesses and countries began to follow suit.
It wasn’t until the late 1700’s that the United States joined the stock market game with the inception of the Philadelphia Stock Exchange. Just two years later, a small group of American merchants made what was called the Buttonwood Tree Agreement, which aimed to garner public confidence in the stock market and create guidelines for trading. These Buttonwood traders are considered the creators of the largest stock exchange in the world to this day, the New York Stock Exchange.[1]
In 1971, the second largest stock exchange began: The National Association of Securities Dealers Automated Quotations, more commonly referred to as NASDAQ. At the time of its creation, the primary difference between NASDAQ and the New York Stock Exchange was that the NYSE was a physical market famously located at 11 Wall Street in New York City, whereas NASDAQ, though also headquartered in New York, existed on a network of computers that allowed for digital global trading.
Stock exchanges have grown exponentially across the globe and evolved over many centuries. Today, investors have access to a plethora of markets and security options that, with technological advancements, can now be traded with the tap of a smartphone screen.
[1] https://guides.loc.gov/wall-street-history/exchanges
