| Although common, the term 'the stock
| |
| | resources of money or stock to close the
|
| market' is a somewhat abstract concept
| |
| | difference, after some time.) Once a
|
| for the mechanism that enables the
| |
| | trade has been made, the details are sent
|
| trading of company stocks. It is also
| |
| | back to the brokerage firm, who then
|
| used to describe the totality of all
| |
| | notifies the investor who placed the
|
| stocks and sometimes other securities,
| |
| | order. Although there is human contact in
|
| with the exception of bonds, commodities,
| |
| | this process, don't think that the NYSE
|
| and derivatives. The term is used
| |
| | is still in the Stone Age; computers do
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| especially to apply within one country
| |
| | play a huge role in the process,
|
| as, for example, in the phrase "the stock
| |
| | especially for so-called "program
|
| market was up today", or in the term
| |
| | trading".
|
| "stock market bubble". Bonds are still
| |
| | The Nasdaq is a virtual (listed)
|
| traditionally traded in an informal,
| |
| | exchange, where all of the trading is
|
| over-the-counter market known as the bond
| |
| | done by computers. The process is similar
|
| market. Commodities are traded in
| |
| | to the above, in that the seller provides
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| commodities markets, and derivatives are
| |
| | an asking price and the buyer provides a
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| traded in a variety of markets (but, like
| |
| | bidding price. However, buyers and
|
| bonds, mostly 'over-the-counter'). The
| |
| | sellers are electronically matched. One
|
| size of the worldwide 'bond market' is
| |
| | or more Nasdaq market makers will always
|
| estimated at $45 Trillion; the size of
| |
| | provide a bid and ask price at which they
|
| the 'stock market' is estimated as about
| |
| | will always purchase or sell 'their'
|
| half that.
| |
| | stock.
|
| The world derivatives market has been
| |
| | The Paris Bourse, now part of Euronext is
|
| estimated at about $300 Trillion.[1][2]
| |
| | an order-driven, electronic stock
|
| The major U.S. Banks alone are said to
| |
| | exchange. It was automated in the late
|
| account for about $100 Trillion. It must
| |
| | 1980s. Before, it consisted of an open
|
| be noted though that the derivatives
| |
| | outcry exchange. Stockbrokers met in the
|
| market, because it is stated in terms of
| |
| | trading floor or the Palais Brongniart.
|
| notional outstanding amounts, can not be
| |
| | In 1986, the CATS trading system was
|
| directly compared to a stock or fixed
| |
| | introduced, and the order matching
|
| income market, which refers to actual
| |
| | process was fully automated.
|
| value.
| |
| | Market participants Many years ago,
|
| The stock market is distinct from a stock
| |
| | worldwide, buyers and sellers were
|
| exchange, which is an entity (a
| |
| | individual investors, such as wealthy
|
| corporation or mutual organization) in
| |
| | businessmen, with long family histories
|
| the business of bringing buyers and
| |
| | (and emotional ties) to particular
|
| sellers of stocks and securities
| |
| | corporations. Over time, markets have
|
| together. For example, 'the stock market'
| |
| | become more "institutionalized"; buyers
|
| in the United States includes the trading
| |
| | and sellers are largely institutions
|
| of all securities listed on the NYSE, the
| |
| | (e.g., pension funds, insurance
|
| NASDAQ, the Amex, as well as on the many
| |
| | companies, mutual funds, hedge funds,
|
| regional exchanges, the OTCBB, and Pink
| |
| | investor groups, and banks). The rise of
|
| Sheets. European examples of stock
| |
| | the institutional investor has brought
|
| exchanges include the Paris Bourse (now
| |
| | with it some improvements in market
|
| part of Euronext), the London Stock
| |
| | operations (but not necessarily in the
|
| Exchange and the Deutsche Börse.
| |
| | interest of the small investor or even of
|
| Trading Participants in the stock market
| |
| | the naive institutions, of which there
|
| range from small individual stock
| |
| | are many).
|
| investors to large hedge fund traders,
| |
| | Thus, the government was responsible for
|
| who can be based anywhere. Their orders
| |
| | "fixed" (and exorbitant) fees being
|
| usually end up with a professional at a
| |
| | markedly reduced for the 'small'
|
| stock exchange, who executes the order.
| |
| | investor, but only after the large
|
| Most stocks are traded on exchanges,
| |
| | institutions had managed to break the
|
| which are places where buyers and sellers
| |
| | brokers' solid front on fees (they then
|
| meet and decide on a price. Some
| |
| | went to 'negotiated' fees, but only for
|
| exchanges are physical locations where
| |
| | large institutions).
|
| transactions are carried out on a trading
| |
| | However, corporate governance (at least
|
| floor, by a method known as open outcry.
| |
| | in the West) has been greatly affected by
|
| (You've probably seen pictures of a
| |
| | the rise of institutional 'owners.'
|
| trading floor, in which traders are
| |
| | History Braudel suggests that in Cairo in
|
| wildly throwing their arms up, waving,
| |
| | the 11th century Islamic and Jewish
|
| yelling, and signaling to each other.)
| |
| | merchants had already set up every form
|
| This type of auction is used in stock
| |
| | of trade association and had knowledge of
|
| exchanges and commodity exchanges where
| |
| | every method of credit and payment,
|
| traders may enter "verbal" bids and
| |
| | disproving the belief that these were
|
| offers simultaneously. The other type of
| |
| | invented later by Italians.
|
| exchange is a virtual kind, composed of a
| |
| | In 12th century France the courratier de
|
| network of computers where trades are
| |
| | change were concerned with managing and
|
| made electronically via traders at
| |
| | regulating the debts of agricultural
|
| computer terminals Actual trades are
| |
| | communities on behalf of the banks.
|
| based on an auction market paradigm where
| |
| | Because these men also traded with debts,
|
| a potential buyer bids a specific price
| |
| | they could be called the first brokers.
|
| for a stock and a potential seller asks a
| |
| | In late 13th century Bruges commodity
|
| specific price for the stock. (Buying or
| |
| | traders gathered inside the house of a
|
| selling at market means you will accept
| |
| | man called Van der Beurse, and in 1309
|
| any bid or ask price for the stock.) When
| |
| | they became the "Brugse Beurse",
|
| the bid and ask prices match, a sale
| |
| | instituionalizing what had been, until
|
| takes place on a first come first serve
| |
| | then, an informal meeting. The idea
|
| basis if there are multiple bidders or
| |
| | quickly spread around Flanders and
|
| askers at a given price.
| |
| | neighboring counties and "Beurzen" soon
|
| The purpose of a stock exchange is to
| |
| | opened in Ghent and Amsterdam.
|
| facilitate the exchange of securities
| |
| | In the middle of the 13th century
|
| between buyers and sellers, thus
| |
| | Venetian bankers began to trade in
|
| providing a marketplace (virtual or
| |
| | government securities. In 1351 the
|
| real). Just imagine how difficult it
| |
| | Venetian government outlawed spreading
|
| would be to sell shares (and what a
| |
| | rumors intended to lower the price of
|
| disadvantage you would be at with respect
| |
| | government funds. Bankers in Pisa,
|
| to the buyer) if you had to call around
| |
| | Verona, Genoa and Florence also began
|
| trying to locate a buyer, as when selling
| |
| | trading in government securities during
|
| a house. Really, a stock exchange is
| |
| | the 14th century. This was only possible
|
| nothing more than a super-sophisticated
| |
| | because these were independent city
|
| farmers' market providing a meeting place
| |
| | states not ruled by a duke but a council
|
| for buyers and sellers.
| |
| | of influential citizens.
|
| The New York Stock Exchange is a physical
| |
| | The Dutch later started joint stock
|
| exchange, where much of the trading is
| |
| | companies, which let shareholders invest
|
| done face-to-face on a trading floor.
| |
| | in business ventures and get a share of
|
| This is also referred to as a "listed"
| |
| | their profits - or losses. In 1602, the
|
| exchange (because only stocks listed with
| |
| | Dutch East India Company issued the first
|
| the exchange may be traded). Orders enter
| |
| | shares on the Amsterdam Stock Exchange.
|
| by way of brokerage firms that are
| |
| | It was the first company to issue stocks
|
| members of the exchange and flow down to
| |
| | and bonds.
|
| floor brokers who go to a specific spot
| |
| | The Amsterdam Stock Exchange (or
|
| on the floor where the stock trades. At
| |
| | Amsterdam Beurs) is also said to have
|
| this location, known as the trading post,
| |
| | been the first stock exchange to
|
| there is a specific person known as the
| |
| | introduce continuous trade in the early
|
| specialist whose job is to match buy
| |
| | 17th century. The Dutch "pioneered short
|
| orders and sell orders. Prices are
| |
| | selling, option trading, debt-equity
|
| determined using an auction method known
| |
| | swaps, merchant banking, unit trusts and
|
| as "open outcry": the current bid price
| |
| | other speculative instruments, much as we
|
| is the highest amount any buyer is
| |
| | know them" (Murray Sayle, "Japan Goes
|
| willing to pay and the current ask price
| |
| | Dutch", London Review of Books XXIII.7,
|
| is the lowest price at which someone is
| |
| | April 5, 2001).
|
| willing to sell; if there is a spread, no
| |
| | There are now stock markets in virtually
|
| trade takes place. For a trade to take
| |
| | every developed and most developing
|
| place, there must be a matching bid and
| |
| | economies, with the world's biggest
|
| ask price. (If a spread exists, the
| |
| | markets being in the United States, UK,
|
| specialist is supposed to use his own
| |
| | Germany, France, and Japan.
|
