Buying Shares – Chapter 5: Stock Markets

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Updated: Mar 5, 2019, 13:14 GMT+00:00

This is chapter number 5 out of 19. Read the rest: Read Buying Shares – Everything that you Wanted to Know but were too Scared to Ask – Chapter 1:

Buying Shares – Chapter 5: Stock Markets

This is chapter number 5 out of 19. Read the rest:

Read Buying Shares – Everything that you Wanted to Know but were too Scared to Ask – Chapter 1: Introduction
Read Buying Shares – Chapter 2: What are Stocks and Shares?
Read Buying Shares – Chapter 3: Different Classes of Stocks
Read Buying Shares – Chapter 4: What affects ‘Stock Prices’?

For centuries stock markets have been necessary, in the form of making easy transfer of funds from persons who don’t require it instantly to companies that do.

The idea behind exchanges comes originally from the 16th century. Until then, companies were solely owned by individuals or groups of individuals. But then arrived the emerging opportunities presented by exploration overseas – the journeys by sea to Africa and theEast Indiesfor instance. These activities were extremely costly and certainly too risky, as the cost was to be footed by one man or firm alone. The solution to this was to limit liability and so the first genuine joint-stock companies were born.

In December, 1600, the East India Company was launched; its goal was to charter territories with the purpose of importing and exporting goods throughout the world. To do this though it required vast quantities of funds for travels from which there was no assurance of return, with the increasing risk of shipwreck, pirates, and wastage. So it presented shares in that company to persons in lieu for cash, the logic being, that the danger would be spread among all the investors; there would be no set return on the shares, but if the company did fulfill its profits, these would be shared amongst all the stakeholders.

As trade grew, the investors did exceptionally well: one such trip gave investors 148% profit. By the conclusion of the 17th century there were more than a hundred joint-stock companies with tradable shares, and traders would get together unofficially to trade these shares.

This system was finally made official two centuries later in 1801, with the formation of the London Stock Exchange (LSE) and since then; there has been no going back.

In Britainnow the LSE supports trade of over 3000 companies. In addition, the London Stock Exchange runs the Alternative Investment Market (AIM), for smaller more immature companies, making up 1040 firms in total. The New York Stock Exchange (NYSE) represents companies worth over 10 trillion Dollars in value. In fact you can also now buy shares in the NYSE. At the time of writing each stock (5,296,368 in total) is tradable at $28.

Take a look at the figure below to see the trading details of the NYSE, we will look at reading these quotes later in the guide:

Buying Shares - Chapter 5: Stock Markets

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Table of Contents

Intro

Intro