The History of the Stock Trade

The stock market is the public marketplace for securities, specifically equities or common stocks, which represent ownership in public companies. The actual buying and selling of securities takes place on stock exchanges of which there are a large number around the world. The world's oldest stock exchange is in Amsterdam, the Netherlands. The Dutch East India Company established it so the public could trade the company's stocks and bonds (see "World Stock Exchanges" below in References). Today, some stock markets still operate on physical trading floors, but most are purely electronic.

Early Trading

The first stock exchange in the U.S. was the Philadelphia Stock Exchange, founded in 1790. Two years later, 24 brokers came together under a large sycamore tree, also known as the buttonwood tree, at what is today 68 Wall Street in Manhattan. There they signed the Buttonwood Agreement setting out the rules that would govern their trading. From this agreement grew the New York Stock Exchange, which today is one of the world's largest stock exchanges. (See "Top Stock Exchanges" below in References.)

Rich Man's Club

The U.S. stock market was almost exclusively the preserve of wealthy men in the first century of its existence. Highly compensated bankers and brokers took care of their wealthy clients. Ordinary investors went to bucket shops, which provided a window into stock market trading. Many bucket shops cheated their clients by just matching buy and sell orders, with a big spread in between to ensure a profit. Often the bucket shops never even placed orders on the Exchange. (See "Bucket Shop Secrets" below in Resources.)

Popularization and Crash

As prosperity spread more broadly following the end of World War I, more Americans started to invest and trade stocks. Historian Steven Fraser believes that between 2 million and 14 million individuals in the U.S. were invested in stocks in the 1920s. (See Steven Fraser's book in References below.) When the Wall Street Crash of 1929 and Great Depression came, many erstwhile investors wanted nothing more to do with the market.

Rise of the Mutual Fund

A second wave of interest in stock investing came after World War II when mutual funds run by institutional investors became popular. Mutual funds allowed investors to have diversity in stocks and other assets and had certain advantages. Congress passed the Investment Company Act in 1940, which compelled companies that traded stocks and mutual funds to be open about their operations and finances. (See "Where Main Street Meets Wall Street" below in Resources.) In 1981, the IRS approved the 401k plan, which allowed employees to save for retirement through a tax-deferred system.

Discount Brokers and the Rise of Online Trading

Following the deregulation of the stock brokerage industry and abolition of fixed brokerage commissions in 1975, discount brokers started up. This enabled individuals to trade stocks more cheaply by making their own trading decisions and, as technology progressed, physically inputting their trade orders themselves. Initially, traders placed orders through telephone touch tone and later, thanks to the Internet, through online trading. As online trading grew exponentially, full-service brokers were also increasingly forced to offer their own discounted services. (See "The Genesis of Discount Brokerages" below in Resources.)

References

• World Stock Exchanges
• Top Stock Exchanges
• "Every Man a Speculator: A History of Wall Street in American Life"; Steven Fraser; 2005

Resources

• "Bucket Shop Secrets"
• "Where Main Street Meets Wall Street"
• "The Genesis of Discount Brokerages"