History of Security Trading
The history of security trading dates back to the 16th century when investors borrowed funds to purchase commodities such as grain, oil, and tobacco. The development of organized stock exchanges in Europe in the 17th century allowed individual investors to purchase and sell shares, thereby creating a liquid market. Initially, the exchanges traded only assets such as ships, land and trophies. Later, it diversified its portfolio and added assets such as government bonds, corporate stocks and derivatives.
Security trading truly flourished in the 1800s and by the time the 19th century had ended, the world was home to many stock exchanges. In the 1920s, it was the era of the famous Wall Street Crash which led to the Great Depression. The Bank of England’s stock exchange, London Stock Exchange and the New York Stock Exchange were particularly affected, losing almost 90% of their values. This incident served as a huge shock to the security trading markets and forced traders to focus on regulations and safety of investments.
The modern age of institutional investment began in the 1950s with the advent of mutual funds and the increase in the size and scope of hedge funds. An increasingly important part of the modern security trading landscape is algorithmic based trading. This method uses computers to conduct trades and make decisions based on a set of predetermined criteria. Algorithmic trading has become increasingly popular with institutional investors as it is fast, efficient, and less costly than using a human trader.
The Dodd-Frank Wall Street Reform Act of 2010 created a new regulatory framework emphasizing increased transparency, risk management, and investor protection. Dodd-Frank also implemented a ban on proprietary trading. While these regulations have created a challenge for security traders, they have also provided the market with a greater sense of certainty and trust.
Today, there are numerous exchanges around the world and security trading is a multi-trillion dollar industry. While the traditional exchanges that operate in different countries are still the primary locations for individuals and institutions to trade securities, electronic exchanges such as the Nasdaq are a growing alternative. International exchanges such as the International Securities Exchange, which was established in 1999, also offer alternative venues for security traders.
The security trading market has come a long way from its roots in the 17th century and investors, institutions, and traders continue to be a driving force in today’s global economy. Despite numerous regulations and a turbulent past, security trading has proven to be a reliable source of investment and income.
