Forex Investment and Currency Trading

The stock market is a fascinating cultural and financial place with a rich history. Before the telephone, communication was virtually impossible beyond the walls of the exchange or, in the case of the American Stock Exchange (AMEX), out on the street, because the exchange could not afford a building, thus its nickname, “the curb”. In those days, the Philadelphia Stock Exchange (PHX) was at great disadvantage because traders in New York knew days ahead of others what goods were arriving by ship. So the PHX set up a series of men on hills with mirrors and telescopes, and messages were conveyed from New York to Philadelphia in less than one hour.

Because trading in the old days was limited to the exchange, only brokers and dealers were able to trade; the market simply was not available to the average person, an idea that is unthinkable today. Major advances included the telegraph, ticker tape, telephone, and of course, the computer. All of these changes have vastly improved the ability of people to communicate and to trade.

The “stock market” is not actually a single place, but rather a network of physical and electronic places including buildings, computer centers, and home computers. The origin of the term goes back many hundreds of years when dealers traded shares of stock in person and where the market was, in fact, a physical place.

Two major stock exchanges grew up during the eighteenth century, formalizing trade as volume picked up in the New World. The first and oldest exchange in the United States was the Philadelphia Stock Exchange. Competition between the two exchanges was fierce and the Philadelphia organizers quickly set up a system of telescopes and mirrors by which they could flash signals from New York harbor to Philadelphia in as little as 10 minutes. This amazing system remained in effect until the telegraph was invented in 1846.

The innovation of the communication system is typical of the American Stock Exchange history. The New York, Philadelphia, and American exchanges have always been on the cutting edge of advances, making the most out of the telegraph, ticker, telephone, television, and computer. Each of these technological improvements has created huge leaps in exchange business and in the execution speed of transactions.

It was not always that way. Before the telephone, for example, it was virtually impossible for people to buy and sell shares of stock directly. They had to work through a broker who would go physically to an exchange and transact for them, often for so high a fee that it was not realistic for anyone outside of the brokerage community to try and make money in the stock market.

The history of the stock market is, sadly, a history of greed and of many individuals taking advantage of people and robbing them of their life savings. In addition to the big panics and crashes that have typified the history of the market, a few corrupt individuals also have profited in this environment. But the colorful history of Wall Street has seen many other characters of similar questionable integrity. The well-known market crash of October 1929 led to the formation of the SEC and passage of several important pieces of federal legislation, requiring listed companies to conduct independent audits, meet specific reporting and listing standards, and limiting the kinds of leveraged trading activity that has so often created market crashes in the past. More recently, after the “Enron” period, Congress increased the SEC’s enforcement budget and enacted numerous reforms through the Sarbanes – Oxley Act of 2002.

On a larger scale, markets have risen and fallen over time, and landmark dates in market history are often the big crashes. Today, the Internet has made the stock market more efficient than ever and has also made stockbrokers virtually obsolete. Traders do not need to telephone a broker and pay exorbitant fees to execute trades; they can do it themselves from their own home or office computer. Unfortunately, this low-cost convenience also has made it easier for con artists to find their victims, and has made market crashes faster and more devastating than ever. With over 26 million computers in use around the world, the stock market today does not exist only in a physical sense in lower Manhattan; it is truly a worldwide market. The New York Stock Exchange (NYSE), only one of many exchanges around the world, transactions more than $2 trillion every trading day.

The big market crashes in U.S. history are worth summarizing, as these define the history of the stock market, often resulting from economic recessions or from the abuses of individuals. The nine worst, based on declines in the Dow Jones Industrial Average (DJIA), were:

1. April 17, 1930 to July 8, 1932 (loss: 86%)
2. March 10, 1939 (loss: 49%)
3. January 1, 1906 to November 15, 1907 (loss: 49%)
4. September 3, 1929 to November 13, 1929 (loss: 48%)
5. November 3, 1919 to August 24, 1921 (loss: 47%)
6. June 17, 1901 to November 9, 1903 (loss: 46%)
7. September 12, 1939 to April 4, 1942 (loss: 40%)
8. November 21, 1916 to December 19, 1917 (loss: 40%)
9. January 15, 2002 to October 9, 2002 (the DJIA lost 38% of its value).

This list provides perspective to the modern version of stock market crashes. Note that the 1987 crash of over 500 points did not even make the list, and the very brief decline in value of following 9/11 was so minor it was not even considered a crash.