What do you imagine when you think stock market?
Famous institutions like the New York Stock Exchange likely come to mind, the power wielded by those in the stock market has the potential to make and break entire industries. The amount of money changing hands and the ease with which it is done in milliseconds is staggering.
The famous scriptwriters play “The Merchants of Venice” is set in the times where the modern stock market was coming to exist in Europe. Similar to the emergence of the first merchant banks in Medieval Europe, the European moneylenders played a vital part in the development of the modern stock exchange.
Agile enough to fill the gaps in service that larger banks were not able to provide, these specialist bankers made their money by rounding out the financial services available to entrepreneurs and businessmen.
With great proximity to many major players via sea, Venice was an ideal location for the flourishing financial sector in Europe. Families like the Medici are famous examples of banking families that grew to immense power off the back of shrewd banking practices. The role of the banker was not only a profitable one – it was part of Venetian culture and high living.
Venetian bankers like the Medici secured further fortune by providing their services to the government. With rates of interest outrageous to modern man in some cases, they nevertheless enabled much in the way of local expansion and development projects.
Stocks and shares
You can bet that other countries around the world also picked up the practice of trading on probability and risk. But how did the term “share” come to be? Why do we know it as a “stock market”?
Belgium is considered by many to be the true birthplace of the practice.
The city of Antwerp became a common meeting point for those who looked to trade and profit from the management of debt.
The East India Company is also a famous example of the use of stocks and shares.
In the past, a ship captain would need to finance their voyage by taking a loan from a company or bank. Trade and ocean voyages were risky business; natural disasters, mistakes in seamanship or pirate activity all threatened success.
The reason the East India Company was so successful was that they did things differently. Groups of investors gathered their money together and offered the ability to sell, trade and buy their company stock with others.
This was such a powerful concept that it spread like wildfire to other countries such as Portugal. France and Spain soon also took up the practice.
Bringing the market together
Before you know it, you have the same stock and share practices being used in separate countries. Each country is making a large amount of money by itself and itself alone. How could a smart investor bring these markets together so that they can profit and share on a global scale?
England was key. A huge maritime power, England and its capital of London was a natural hub for trade and the share of wealth amongst the elite of various industries and professions.
It all began in a humble coffee house. Traders would meet and discuss the latest happenings and go over the newest opportunities for profit. The sharing of stocks and trades took on a global scale and in 1773 the coffee house was formally purchased and renamed to the London Stock Exchange.
Soon, this idea made its way to other countries with the colonies in America adopting the practice soon after in Philadelphia in 1790.
The modern stock exchange
We owe a huge amount to the stock exchange. The ability to trade on risk and invest in the shares of a company was a key factor in the explosive expansion during periods such as the industrial revolution.
Stock exchanges exist in many countries across the world, connected at a digital level with the ability to trade almost instantly.
The ability for both governments and individuals to gain wealth through these establishments is a cornerstone of modern society as we know it.
We’ve come a long way since pirates and coffee houses!