Home Beginner Market Structure The World’s Financial Markets – A brief Introduction

The World’s Financial Markets – A brief Introduction

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A brief history of the Global Markets

Markets are the natural result of human activities and the economy. We have created them as a natural place to trade and commerce. As human activities grew and expanded, so did market types, size and complexity.

The arrival of money enabled people to accumulate wealth in the form of coins of gold, silver, and copper. It also brought the possibility to borrow and lend money from/to others.

The first known “bankers”, around 2000 BC in India, Assyria, and Sumeria were the merchants of their country, who made grain loans to farmers and traders carrying goods between towns.

The emergence of capitalism and the stock markets let people acquire shares or Stocks from companies for the dividend: the share of earnings that was distributed between shareholders. Also, government agencies and companies in need to finance their operations emitted debt in the form of a bond.

Early times

The first true stock markets didn’t appear until about the XVI century. However, there are examples of markets that had related characteristics. In the France of the XII century “courretiers de charge” managed agricultural loans throughout the country, on behalf of banks. A clear example of brokers trading debt.

The world’s first stock markets are generally credited to Belgium. Bruges, Flanders and Rotterdam in the Netherlands also had their stock market organisations back in the XV century. However, the credit for the first stock market place was Antwerp, home of the influential Van der Beurze family. As a result, stock markets began being called Beurzen (Börsen).

The world’s first publicly traded company

The world’s first publicly traded company was the East India Company. The only reason for a company to be offered to the public was just one: Risk. It was too risky for a single individual to do business on the farthest side of the planet. Ships sank or were lost, wasting fortunes, but the potential market of India was enormous. Financers thought that the only way to reduce the risk was by sharing it.  As a result in 1600 a company called “Governor and Company of Merchants of London trading with the East Indies” was created, and it was the first company to use Limited Liability.

Stocks traded at coffee shops Back then, stock shares were handwritten on paper sheets. Investors traded them with others at coffee shops. Therefore, coffee shops were the first real stock market places.

Modern Stock markets

Nowadays, stock markets exist in almost every country on Earth. In developed countries, the major stock markets opened back in the XIX century, after the London Stock Exchange and the New York Stock Exchange.

The Top 10 Stock Markets

The current top 10 stock markets in the world are NYSE, NASDAQ, Tokyo, Shanghai, Shenzhen, Euronext, London, Hong Kong, and Deutsche Börse. The graph below shows the size in billion dollars of these top 10 stock exchanges. Click the image to enlarge.

 

 

Graph 1 – Top 10 exchanges by trade size (billions)

Relative Size of The World Stock Markets

Markets at the beginning of the XX century was dominated by Europe, with the UK leading the business world.

Graph 2 World’s Markets relative size, Jan 1900 – (Click to enlarge)

Currently, The USA is the world leader in stock exchange value with 54% share, followed by The UK, Germany, and France. But the evolution continues, and China maybe is the next candidate to challenge the USA’s domination in the coming years.

Graph 3 World’s Markets relative size, Jan 2016 – (Click to enlarge)

Financial Markets Linked-Map

The Financial Markets today offers a vast amount and variety of investments vehicles to the investor, speculator, and trader.

The Financial instruments can be classified in three groups: Stocks, Monetary Markets and Commodities, although they are interlinked because money flows from financial companies to the rest of the economy and also commodities are the business activity of another type of companies.

In the end, the stock market englobes the rest of the classes because all classes are contained within some specific sector.

The drive for measurements to gauge the economy, in order to properly assess the current investments risks, gave birth to the creation of Indices. From Broad market indices down to sector indices and specific country indices these averages gave birth to Index Exchange Traded Funds, allowing ordinary people “thematic investing”.

The need to hedge against risk from the one side and the appetite for the risk from the other, gave birth to the Derivative markets: Futures, Options and CFDs allowed speculators to operate with leveraged instruments, multiplying their chance for huge profits, and losses as well.

Let me finish this small introduction showing you a node map linking the majority of the available markets and its classes. We will cover every one of them on dedicated articles, explaining their properties and ways to trade them.  (Click on the image to enlarge)

 


References:

The Pie charts were developed from data taken from Financial Market History. CFA Institute Research Foundation

The Top 10 ranking was from data seen in visualcapitalism.com

Bits of the history of the stock markets were taken from bebusinessed.com

 

 

 

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