An Ultra-Short History of the Stock Market
(and why the time has come for you to get involved)
In the 18th century the most important exchange in the world was the New York Stock Exchange (NYSE). In order to trade you would need the services of a broker. Each time you authorized a trade a complex chain of events involving a large number of people was set into motion. In return for these services you paid a commission. Not surprisingly, it became a pretty expensive proposition. Only by trading large volumes could the commission be negotiated down to somewhat reasonable levels. This was because handling the sale of a single share required almost the same labor as handling the sale of a million shares of the same stock simultaneously. For this reason the barriers to entry were very large. You truly needed money to make money. For individual investors determined to participate in the markets, the process required paying a lot of people along the way and then settling for the leftovers.
One of the reasons so many people were involved was to maintain order, and probably the most important person in this respect was the “specialist.” His (or very rarely, her) role was as a matchmaker between people who owned a stock that they wanted to sell and people who wanted to acquire that same stock. The information that was causing these two parties to make opposite decisions at the same time could have significant impacts on the stock price, and therefore on the ability to complete a given transaction. It was the specialist’s job to process all of the orders from a detached and professional perspective. This was necessary to keep the markets from becoming […]