The very first actively traded stocks were introduced in 1602 with the establishment of the Dutch East India Company (VOC) and the Amsterdam Stock Exchange.
Chances are that stocks were used earlier than this, since the concept of stocks is simple.
By issuing shares of a company or project, its management can raise investment capital to fund the business. All the shareholders will than profit from their investments if the company makes profits, in the form of dividends, or if the shares can be sold for a higher price later.
There are many international stock markets and exchanges where different stocks can be bought and sold. The largest stock exchange in the world is the New York Stock Exchange.
The whole concept of stock markets works as follows:
- Companies can choose on which stock exchanges they would like to list their shares;
- Investors like you and me can buy (partial) ownership in companies by buying shares;
- Companies use this money to invest in their daily operations, like plants and inventory;
- If companies make profits, they could decide to pay dividends periodically;
- They can also choose to reinvest this money back into their company;
- With steady yearly profits, stock prices will rise gradually;
- This is basically supply and demand in action;
There are two different kind of stocks:
- Common stock, which offer voting power and ownership rights;
- Preferred stock, which offer higher claims on dividends and payout on liquidation;
We will most often refer to common stock, just like professional investment books!