One of the most exciting places to be in this world is on a stock exchange. Every day, billions of dollars worth of stocks, bonds, exchange-traded funds (ETFs), and every other financial asset are transferred from one person or company to another. But what is the stock market?
What is Wall Street?
In 1653, Dutch colonists erected a wooden wall to fend off the British and Native Americans. The wall survived a little more than 40 years but the name remained and by the 18th century, it became the world’s most famous symbol for financial markets. Wall Street is now used as a collective term for the business, financial, and investment community as it is the home for the New York Stock Exchange (NYSE), the largest investment banks, and massive brokerage firms. Any market you want – stocks, bonds, commodities, foreign exchange, and futures – you can find it on Wall Street.
What is the Stock Exchange?
A stock exchange is where the stock market action takes place. Traders converge onto this arena and buy and sell shares of stocks and bonds, execute trades, negotiate prices, monitor markets, and track supply and demand. It is estimated that approximately $100 billion exchanges hands every day.
What Are Stocks?
A stock is a security (tradable financial asset) that represents an ownership stake in a company. Businesses that are publicly traded on the stock market sell shares to raise money. Investors purchase stocks to grow their wealth over time. If someone buys stocks in a company, they get to own a portion of that business.
How Do People Trade Stocks?
Years ago, the only way to trade stocks was through a broker (an agent at a firm who would invest on your behalf). However, a whole host of services have been developed that essentially gives members of the public the freedom to trade on their own. The main method for a lot of independent investors – passive or professional – is by opening a brokerage account at a bank and then making trades on the institution’s platform.
Why Do We Have a Stock Market?
In 1792, the nation’s first and biggest brokers signed the Buttonwood Agreement. The pact established commission-based trading that triggered the buying and selling of war bonds and bank stocks. The deal was later updated and the brokers renamed themselves The New York Stock and Exchange Board, renting out space throughout the city. It was not until 1865 when the group moved into 11 Wall Street.
The stock market is instrumental in companies raising money by offering stock shares and corporate bonds and investors earning capital gains and dividends. What is often neglected is that the main objective of a stock market is to openly and fairly regulate stock transactions and a myriad of other financial assets.
Does the Stock Market Influence Our Lives?
The stock market is one of many indicators of how well or how poorly an economy is performing. That said, since more than half the country owns stock, a market correction or financial crisis can destroy the livelihood of millions of Americans. Whether it is their 401(k) or personal investment, a crash on the NYSE can produce devastating consequences that can have a domino effect. Even people without a stake in equities would be impacted by a dramatic decline in the stock market.