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The First Stock Exchange in The World

Sep 30, 2019 | 4 months ago | Read Time: 3 minutes | By iKnowledge Team
The First Stock Exchange in The World

The first stock market originated in Amsterdam over 4 centuries ago. Tracing the history through time

In the late 1500s and the early 1600s, the East India Company encouraged people to invest in its shares by employing the principle of limited liability. Back then, it was a common practice among investors to invest in the voyages to various countries and colonies. But the risks of individual voyages far surpass the benefits, leading to unprecedented losses. To work around this unfavorable situation, the Dutch East India Company became the first company to be listed on the Amsterdam Stock Exchange in 1602. This listing opened up the option of allowing the investors to purchase the company’s shares and enjoy a percentage of its profits. Thus, even if a few individual voyages failed and others proved successful, leading to a net gain, the investors were left with a positive cash balance, as opposed to the substantial losses they suffered from earlier.

The First Stock Market Bubble, And How It Burst

The pattern followed by the stock market has pretty much remained unchanged over the past four centuries. A period of steady rise is often followed by a bubble or a boom that eventually bursts, and then, the stock market slowly picks the pieces back up and rises again. The first time this happened was in the early 1800s.

The first few investors, who contributed to the voyages of the East India Company, made generous profits and earned high dividends. This encouraged other investors to pitch in. Spurred on by the increasing willingness among investors, other companies and businessmen began to offer shares for their ventures. Unfortunately, many of these businesses were not backed by dependable ideas.

Notable among these was the South Sea Company (SSC), which used the invested funds to set up expensive offices in London even before it had turned any profit. The bubble burst when the SSC failed to pay any dividends on its negligible profits. This led to a severe economic crash, causing the government to ban the issue of shares outright.

Stock Markets in Today’s World

The 19th and 20th centuries saw a rapid rise in the growth of stock markets around the world. Today, practically every country has its own stock market. With the advent of liberalization, globalization, and capitalism, it even became possible for people in one country to trade on the stock markets of other countries.

The New York Stock Exchange (NYSE) remained the major player on the market until its only other formidable rival, the NASDAQ, was founded in 1971. The distinct characteristic of the NASDAQ that set it apart from other exchanges was that it was the first electronic stock market, where all trades were executed electronically, and all the shares were held digitally.

The Future of Stock Markets

While very little can be predicted about the future, it seems that one thing is fairly certain – stock markets are here to stay. Over the years, several stock exchanges have merged together to form bigger and more efficient exchanges. Despite these mergers, the NYSE continues to remain the largest and most dominant stock exchange. While the NASDAQ does have more companies listed, the market capitalization of the NYSE exceeds the combined values of the market caps of the Tokyo, London, and NASDAQ exchanges combined.

Theories and hypotheses speculate a future where all the existing exchanges merge together to form a global stock exchange. While it does seem plausible in theory, such a situation is highly improbable.

Nevertheless, whatever the future may bring, it’s almost certain that the stock markets of the world will continue to function unhindered, considering how they play such a valuable role in the global economy. So, for the next century, or until the next millennium, the market is set to continue to influence several other sectors like banking, insurance, and even oil prices.

The Link Between Stock Markets and Insurance

Much like the stock market, insurance is an investment vessel by itself. Life insurance, retirement plans, and term insurance in particular, are some of the most stable insurance investment options for risk-averse investors.

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