Stock exchange. Stock exchange evolution.

Exchange has existed from the beginning of the human society. Development of this process led to appearance of money and trading. Then fairs, caravan routes, active international trade appeared, and a new social class was formed - traders. Such concepts came to life as investments, investors, intermediaries, stock exchange, speculations and speculators. To exchange news and conclude transactions, traders and investors had to meet at taverns, city squares or even in churches. Thus, first exchange assemblies appeared.

Appearance of the very term "stock exchange" (bourse) is related to the Dutch city Brugge, where a rich family of traders, Van der Burgsters, lived. The family had a hotel, which became a favorite accommodation of Venice traders. Thus, the expression "come to Burgser" gradually transformed to the modern word "bourse."

A special building for transactions was first constructed in 1531, in Flemish Antwerp. It was a prototype of the Lion exchange (1545), London Royal Exchange (1566) and other exchanges of commodity type mainly. Their difference from wholesale trading was not only an opportunity to buy or sell goods without delivering the entire batch to the place of transaction, but that it was possible to conclude a transaction for commodities, which had not been yet produced. Appearance of transactions with delayed execution date provided an opportunity to derive profit from price fluctuations, which made the exchange a resort for speculators. From this moment on, anyone, who understood that preservation of capital is its increasing, took interest in the exchange, and the only enrichment instrument was own intellect and piercing wit.

stock exchange
But participation in such exchanges was affordable only for owners of big capitals. Not everyone could find resources to buy 10,000 bags of grain or a caravan with oriental spices. To solve this problem, stock exchanges were created. Stock exchanges needed numerous participants, although they were not always accessible to the public.

Even large wealth was not stable, because its owner wished to invest all money in business to gain the biggest profit, and the lack of reserve made his a victim of changing conditions (price increase, non-fulfillment of obligations before the partner, shipwrecks, etc.). This is when it became necessary to involve of small savers, whose small capitals formed a considerable contribution to the 'central' capital. Then stocks were issued, giving the right to their owners to participate in the company's activities and receiving a share of profits, depending on the share size. The securities market appeared where anyone could buy stocks of the company he trusted or stocks, which rose in price. Thus stock exchanges emerged, where they sold not commodities, but paper liabilities.

stock exchange / XVIII century
From the late Middle Ages, the state machinery of any European country spent more money, than collected in taxes. The royal treasury always had negative balance. The state had to issue debt securities, promising high interest. Popularity of such securities strengthened positions of stock exchanges in the economic life of the country. Population also habituated themselves to financial discipline, financial prudence and financial control over the state.

Thus, producers always need money for production development, and the state faces a temporary gap between collected taxes and spending of this funds. Conversely, population accumulated considerable sums of money in the form of savings. The state issues bonds, which intrinsically were promissory notes, and companies offered everybody to become their rightful owners. In the first case, the bond holder will receive a guaranteed percent, and in the second instance - a part of annual profit of the company in the form of dividend. The stock exchange acts as an organizer of trade with such securities.

stock exchange / XIX century
Inheriting trading instruments from the commodity exchange, the stock exchange left it behind very quickly. Mass transition to the joint-stock form of the entire business, which started in the second half of XIX century, strengthened its superiority status in the exchange world. From this moment, the exchange started playing one of the leading roles in the national economic development.

Further development of stock exchanges was progressing by increase of their sphere of influence. Gradually, exchanges of the most economically developed countries have come to the foreground. Such exchanges consolidated stocks of companies, which reached the national level by their financial operations.

With consolidation of exchanges, the exchange mechanism started to change. Being initially a place of meeting of two merchants, willing to strike a bargain, the exchange did not perform any functions, except for provision of conditions for conclusion of transaction.

stock exchange / XX century
With increasing trading, the exchange could not physically accommodate all, who wanted to sell or buy securities. Those who undertake the function of exchange business became intermediaries. In a separate transaction three parties participated: the seller, the buyer and the intermediary. At the initial stage, the model was simple - one intermediary brought together the buyer and the seller. With increased exchange operations the model became more complex: there were two intermediaries. The buyer addressed to one intermediary, and the seller - to another, and probability of coincidence was small. With even higher intensity of exchange operations, the model still popular in XIX century appeared: intermediaries themselves need assistance, and one more intermediary came between them. Let us call him "central" and his counteragents - "flank" intermediaries. In XX century the exchange became so popular, that, for example, in the USA more than 50% of the population participated in trading. Now the exchange has a very divergent and developed network for inquiry service, where conclusion of a transaction with small capital is a very easy procedure, although still expensive because of numerous intermediaries.

Tough competition and development of the Internet technologies simplified technical and legal aspects of transaction. After the computer revolution, the revolution of exchange business happened.
The central information link is also decentralized here. Participants enter into transactions with a high degree of independence, crossing borders of countries, economic unions and previously respectable exchanges. It is no longer necessary to stand for hours among enfilades of the exchange hall, fawn on a regular clerk, obtain a lot of permits and trade blindly, when the investor, giving instructions to his broker, in the best case used bulletins of NEW YORK WALL STREET JOURNAL, and at the worst - just rumors. stock exchange / XXI centuryThe Internet, sound competition, new technologies and science have changed everything. The market has become more self-adjustable, overcoming egoistic interests of big gamblers. The aggregate mass participant of this accessible virtual exchange becomes more powerful than any financial tycoon, who earlier could organize a crisis in a separate country of even a continent. The consolidated intellect of a multimillion mass of stockholders now ensures wellbeing of the middle, intellectually active class. 

Approximately in the 1950-60's, first enthusiasts and then other progressive part of exchange community paid attention to the fact that price on this or that financial asset does not change chaotically, but follows certain regularities. Virtually everywhere traders started placing prices on the coordinate axis, trying to analyze the received charts. Thus, the New Epoch of exchange trade has come - the Epoch of Technical Analysis.

Technical analysis assumes that all information on the market and its further fluctuations in already contained in the price. Any factor influencing the price - economic, political or psychological - has been already considered by the market and included in the price. Background data for technical analysis are prices - highest and lowest, opening and closing price for a specified period and volume of operations. The instrument of technical analysis is a chart, the language - statistics. It is possible to say, that technical analysis is statistical-mathematical analysis of previous quotations with forecasting of consequent prices.

Stock exchange / Technical analysis

Such an approach to exchange business was new and attractive. Just for several years, technical analysis has changed from an exotic instrument to a scientific method. Today it is hard to imagine the stock exchange without price change charts, technical analysis without Support and Resistance lines.  

Profession of the financial manager or the trader has become something more that just an occupation. Trading results much depend on ability to correctly interpret events, not just on financial potential of the participant of exchange trading. Such personal qualities as individuality, analytical mind, quick reaction, etc. started playing a significant role.

The next stage of the exchange evolution was introduction of margin trading principles. The idea of margin trading is provision of credit for carrying out of a speculative transaction to the amount several times higher than the client's resources. Ratio of credit sum to the client's deposit is called Leverage. Today this ratio can be 1:100 and more.

Due to this service, more and more financial markets of the world become more accessible for a regular investor. Of course, now the owner of 5,000-10,000 USD will not turn the market upside down, but he can do something what was impossible to do even for very rich companies. He can gain income irrespective of the market whims, conspiracy of transnational companies and other collisions. The only thing the trader is concerned about is analysis of the market situation and forecast of price change by methods of technical and fundamental analyses. Forecast of price change is certainly a very difficult task. But look closer at securities quotation charts, find regularities, read special literature, train yourself, and then profit will be a deserved award for the pungency of your wit.

*  This article has been prepared and written by the specialists of analytics department of the Company Larson&Holz IT Ltd. in 2004. Stock exchange
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