History Of Stock Market And How It All Started Globally and in India
A stock market is the aggregation of buyers and sellers of stocks in which they represent the ownership which they claim on businesses. It might also include securities that are listed on a public stock exchange. Some stocks are only traded privately including shares of private companies which are sold through equity crowdfunding platforms to investors.
Investment in these stock markets is considered most important as they are often done through stock brokerages and electronic trading platforms. If one wants to earn more benefit, then it is needed that he must invest by keeping a good investment strategy in mind. As per the data of 2016, in the world, there are 60 stock exchanges. Among them, 16 stock exchanges with a market capitalization of $1 trillion and they account for 87% of global market capitalization.
History of stock market
In 12th-century France there were courtiers de change, they were very concerned with the management and regulation of the debts on behalf of banks regarding the agricultural communities of their region. These men were also traded with debts so because of that, they were known as first brokers. then they started this trade for their region by becoming the brokers.
Till the 13th century, the Venetian bankers started the trade in government securities. Meanwhile, some rumours began to take place that the government has lowered the price of govt funds. Then the bankers in Pisa, Verona, Genoa and Florence also started trading in government securities till the middle of 14th century. It was possible because these city-states were independent, which means that they were not ruled by any duke but a council of influential citizens ruled these cities and they used to govern that area. In the field of issue of shares, Italian companies were the first one to do so.
Many other countries began to establish this method and a company of joint-stock was established in which only those people can own the stocks who are wanted to join by the shareholders. In some meantime, it emerged and became important for colonization of the New World. In the early 1600s, the Dutch East India Company became quite popular and it became the first company to issue bonds and shares of stock to the general public in history. It also led to the start of the stock market globally.
Now, if we talk about the current scenario, There are too many stock markets which are present in both developed and developing economies in which the world’s largest markets are the United States, United Kingdom, Japan, India, China, Canada, Germany, France, South Korea and the Netherlands.
Purpose and functions of the stock market
The aim of the stock market is to raise money for those companies who are investing their money by buying stocks in the stock market. Along with profits, there are debt markets which are more imposing but do not trade publicly in the stock market. It provides an opportunity for businesses to be publicly traded, and in this, they can raise additional financial capital for expansion of their trade by selling their shares of ownership of the company in a public market. The investors are allowed to sell their shares and securities in the exchange affords. Investing in stocks is quite interesting in comparison to other less liquid investments such as property and other immoveable assets.
stock markets are often considered as the primary source for any country to strengthen their economy and development. A rise in shares prices also led to an increase in business investments and vice versa. Share prices also affect one’s wealth of households and their consumption. So for the smooth operation of financial system functions, central banks keep an eye on the control and behaviour of the stock market. Central banks also take major steps to maintain Financial stability.
If we talk about investors then mainly there are two kinds of investors: the first ones are those who know about the investment opportunities in India and second are those who don’t know them. In comparison with the US, India is mighty small but it is one of the strongest in stocks markets. Here is a glimpse about the Indian stock market and how it is quite interesting to invest in the stock market.
The BSE and NSE
The Indian stock market included two stock exchanges on which it has taken place: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE was founded in 1875 and NSE was founded in 1992 and it led to a start of trading in 1994. However, both BSE and NSE follow the same trading mechanism, trading hours, and settlement process in the stock market.
As per the data of February 2020, the BSE had total 5,518 listed firms, while the NSE had total 1,799 firms, as per data of Dec. 31, 2019. Among these listed firms, BSE has only about 500 firms which constitute more than 90 per cent of its market capitalization and the rest of them consist of highly illiquid shares.
Among all major firms, India is listed on both the exchanges. In terms of volume, the BSE is one of the older stock markets whereas the NSE is the largest stock market. the NSE is a more liquid market than BSE. In terms of market capability, both NSE and BSE are comparable at about $2.3 trillion and exchanges compete for the order flow that also led to a reduction in costs, market efficiency, and innovation. The presence of arbitrageurs keeps the prices on these two stock exchanges within a very tight range.
Introduction To the Indian Stock Market
Trading Mechanism: it includes trading for both exchanges which takes place through an open electronic limit order book and in this the order matching is done through the trading computer. In this, it does not have any market makers and the entire process is order-driven, in which the market orders are placed by investors, those who are automatically matched with the best limit orders and buyers and sellers remain anonymous in this mechanism.
the order-driven market is having one advantage i.e it brings transparency by displaying all buy and sell orders in the trading system. But there is no guarantee whether the orders will be executed or not in the absence of market makers.
Settlement and Trading Hours: in this, there are Equity spot markets which follow a T+2 rolling settlement which means that this trade takes place on Monday and gets settled by Wednesday. Trading of stock exchanges takes place between 9:55 a.m. and 3:30 p.m as per the Indian Standard Time (+ 5.5 hours GMT), i.e Monday through Friday. In this, all settlement risks serve as a central counterparty.
Market Indexes: There are two prominent Indian market indexes which include Sensex and Nifty. Sensex is the oldest market index in terms of equities and also includes shares of 30 firms listed on the BSE, which means that about 47 per cent of the index’s free-float market capitalization. It was founded in 1986 and it provides the time series data from April 1979 and onwards.
There is Standard and Poor’s CNX Nifty index which includes almost 50 shares which are listed on the NSE and it represents about 46.9 per cent of its free-float market capitalization. It was founded in 1996 and gives a time series data from July 1990 and onwards.
Market Regulation: it includes the overall responsibility of development, regulation, and supervision of the stock markets with the Securities and Exchange Board of India (SEBI) and it was established in 1992 in the category of independent authority. SEBI has continuously tried to lay down the market rules in line by providing the best market practices.