Stocks and Shocks: The History of the Stock Market
You probably own stocks without thinking about them. 53% of American families have investments in the stock market, including in retirement plans. You may think the stock market is a new invention, created sometime in the 20th century.
In reality, the history of the stock market is long and winding. It hasn’t always been successful or popular, yet it has endured.
How did the stock exchange start? What did collapses in the early stock exchange look like? How did the American stock market start, and where did the Nasdaq come from?
Answer these questions and you can dive deep into the rich history of American finances. Here is your quick guide.
The Early Years
Trading practices were well-developed by the time stocks were created. Businesspeople would pool money to buy ships and property, and they organized their transactions through guilds. The Dutch East India Company handled transactions and shipping operations, making it extremely powerful in the 16th century.
But as time went on, the company needed to raise capital for its expansive operations. In 1611, it created the Amsterdam stock exchange and began selling shares to investors. Businesspeople could give money to the company in exchange for the company’s proceeds.
This idea became widely popular. Companies throughout Europe began offering stocks, and each European country opened its own exchange.
During the 1600s, many investors hurried to buy stocks without considering what they were investing in. Some companies like the Dutch East India Company thrived with the capital they received. Others mismanaged their money, causing them to close down.
In 1720, investors became so fearful of closures that they sold their shares. The stock markets across Europe collapsed. You can learn more about this stock market crash by googling “South Sea Bubble.”
The American Stock Market
US stocks have existed as long as the United States has. A group of New York businessmen came together and drafted the Buttonwood Agreement in 1792. They agreed to give preference to each other in negotiations and refused to sell stocks at low rates.
The agreement set the stage for the New York Stock Exchange. During the early years of the 1800s, businessmen studied the stock market crashes in Europe and agreed to introduce regulations. They created a board that would supervise stock sales and put caps on investments.
Stock market investing grew more complicated with time. In 1971, the Nasdaq stock exchange opened to allow trades using electronic technology. In 1992, the Nasdaq linked with the International Stock Exchange in London, allowing stock trades between America and Europe.
The History of the Stock Market
The history of the stock market is more complicated than you would think. European businesses began selling stocks more than 400 years ago so they could raise capital for shipping operations. But stock markets lacked regulation, leading to crashes.
Americans got interested in stocks in the 1790s. The New York Stock Exchange introduced many regulations used during stock transactions today. It expanded across national borders in the 20th century, fueling the economies of the Americas and Europe.
These are just the essentials about the stock market. Read more stock market history guides by following our coverage.