Where it all began: The origin of the stock market
Investing in the stock market is a popular way to try to grow wealth in the world. With all the different types of investments, like traditional stocks, ETFs, mutual funds, and even crypto, the global stock market is worth about USD 100 Trillion [1], but how did such a revolutionary industry come about?
The Dutch East India Company: The origins of trading can be traced back to Europe.
In the 12th and 13th centuries, many types of traded securities emerged to aid debt, like the lettre de change in France and the Traders in Italy, but the first stock exchange model was built in Belgium called the Bourse at Bruges [2] where different countries could trade bonds and promissory bonds. With this model, there was no risk as customers would give money to the government, and after a while, they would pay them back more money than they invested.
The first stock market, similar to the current module of stock exchanges today, was created by the Dutch East India Company (VOC) [3], established in 1602. It became the first publicly traded company that offered shares to the public based on high-risk voyages.
Before the company was established, shipowners would embark on dangerous trips with rough waters and pirates to get resources from Indonesia and surrounding regions. These shipowners would invest their own money into the trips, which implied a large financial risk for them. To combat this, they would seek investors to back the trips financially. The investment allowed the shipowner to mitigate some of the risk as they weren't financing the voyage by themselves. If the trip was successful, investors would then receive a percentage of the profit based on their initial investment.
With this, The Dutch East India Company was formed. Investors could purchase a piece of the company and, depending on the profits from each of the voyages conducted by the company, the funds would be distributed according to each individual’s participation.
Benefits of a Stock exchange
With the profits the company kept, it could invest in more ships and voyages, which would increase the yearly earnings of the company. As the company grew, the stock price would go up. With the dividend model, investors had to choice to keep them or reinvest them for a greater stake in the future.
With the VOC's success, similar models were adopted in countries around Europe and then around the world. Different industries, such as the technology, agriculture, and energy industries, also started using the stock market and setting up their shares.
How digitalisation benefits the Stock Market
One of the biggest issues of the older versions of the stock market was accessibility. Investors would have to track down stockbrokers in person or at trading hubs to be able to invest in any company. The digital age really aided the industry as investors can actively trade stock anywhere when the stock market is open. The stock market started its transformation into the dynamic ecosystem that we know today.
Sources:
[1] https://www.visualcapitalist.com/the-109-trillion-global-stock-market-in-one-chart/
[2] https://tontinecoffeehouse.com/2020/09/07/the-original-bourse-at-bruges/
[3]https://www.google.com/url?q=https://www.britannica.com/topic/Dutch-East-India-Company
