3 Stock markets

The Pilgrims is the name given to early settlers of the Plymouth Colony in the United States.  They came from the congregations of Brownist English dissenters who had fled religious persecution in England and settled in the Netherlands.  From there, they struck out for North America in the seventeenth century to establish a new colony in which they could maintain their way of life.  They were financed by English investors.

Introduction

The major stock exchanges around the world, such as the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE), came into existence to facilitate the activities of investors and brokers, but evolved into commercial companies operating in a competitive marketplace.  Modern stock exchanges are serious businesses. In their quest for profitable business, they work closely with many market participants, including investment banks and trading houses.  For example, they create special types of trade to suit major customers and they accommodate the high-frequency traders vying to co-locate their servers with those of the exchanges to create high-speed connections.  And they compete vigorously among themselves for companies to list on their exchanges.

Often referred to as public exchanges, the traditional stock exchanges make up the bulk of the cash market where shares change hands for cash.  Shares – or more accurately, derivatives of share prices – are also traded on the futures markets, which operate on margin – effectively, borrowed money.  The futures markets are described in Chapter 9.

The ideal purpose of a stock market is to enable the most efficient use and allocation of capital by bringing buyers and sellers of company shares together.  People or organizations that have free capital can invest in companies that they believe will do well with the expectation that they will increase their capital.  If companies disappoint, investors can withdraw their capital.  Especially when markets are buoyant, people and institutions will borrow heavily to invest in the markets.

A great deal of the money in the markets is invested by pension funds and insurance companies working hard, if not always effectively, for their clients.  They seek to allocate capital efficiently and to reap a reward from doing so.  However, there are […]