We all know that stock markets, also known as equity markets, are a hot topic especially owing to current events such as the pandemic, the predicted recession, and Russia’s war on Ukraine. But why do stock markets exist?
What is a stock market
The stock market is a platform where shares/equity of companies are traded. A company issues its shares in the stock market and buyers can choose to invest in them and get a certain portion of ownership in the company. Companies mainly float their shares in the equity market to raise capital to expand and grow their business.
In this article, we take you through some lesser known facts about equity markets. These can be helpful if you’re an active trader, an aspiring one or someone looking to work in financial services or investment banking.
1. Equity markets have been around for a long time
In the Netherlands, around the 1600s, the Dutch East India Company created the first “modern” stock exchange as we all know it. They started by issuing paper shares that people could buy and sell. As a result, the Amsterdam Stock Exchange is the first equity market to exist.
Amsterdam Stock Exchange is now known as Euronext Stock Exchange and is the oldest one to exist in the world
2. New York Stock Exchange (NYSE) is the largest stock exchange by market cap
The infamous NYSE has the largest market capitalisation when compared to stock exchanges across the world. The market cap of NYSE has crossed the $26 trillion mark! This number equates to more than one-third of the total global market cap of all exchanges in the world.
To put this in perspective, the market cap of BSE is a little over $2 trillion. NYSE’s market cap is over 12 times that of BSE.
3. BSE is Asia’s oldest stock exchange
BSE or the Bombay Stock Exchange is Asia’s oldest and largest stock exchange. It was founded by Premchand Roychand in the late 19th century. During its early days, five stock brokers used to come together to sit under a banyan tree and trade.
BSE has come a long way from those humble beginnings. It has over 5000 listed companies which also makes BSE the largest equity market in Asia. There are many other stock exchanges all around India, but BSE and NSE are the main ones.
In the USA, NYSE is the largest stock exchange. It is, in fact, the largest stock exchange in the world! NASDAQ, another New York-based stock exchange, takes the second pace of the second largest stock exchange in the world by market cap. The oldest stock exchange in the US is the Philadelphia Stock Exchange which was set up around 1790. In 2007, NASDAQ overtook the PSE for a hefty sum.
4. The most expensive stock trades at around $500,000
Yes, you read that right! Berkshire Hathaway is the company that has the most expensive stock price in the whole world! Each stock trades anywhere between $350,000 – $500,000. Currently, it’s floating at around $450,000 which converts to more than ₹3 crores for ONE share.
You might be wondering what Berkshire Hathaway does. It is an American conglomerate holding company with operations across the world. Its chairman is the very famous investor Warren Buffet. They have investments in public companies and have bought out several companies as well.
5. Bull and bear lead the stock market sentiment
We hear these two words a lot. It can be confusing to understand what they mean in terms of the equity market. Bear and Bull are two “types” of markets or the two phases an equity market experiences.
When the market is appreciating and gaining value and the sentiments are positive, it is known as the bull market. Some investors believe this is because the bull has its horns pointing upwards.
On the other hand, when the market is depreciating, losing value, and experiencing negative sentiments, it is known as the bear market.
Both are very common and normal phases of the market. As the economies flow, the markets correct themselves and keep going through highs and lows.
6. The S&P 500 index does not have 500 stocks!
This might sound absurd, but it’s true! The S&P 500 Index does not actually include 500 stocks. It has 505 stocks. The index does include 500 companies but some of the companies have issued many share classes. This has increased the number of stocks in the index.
7. Pirate Stock Exchange
In Somalia, a pirate stock exchange was founded around 2010. Here people can invest in pirate gangs and based on the ransoms they collect, the investors can get a profit from that. No one is entirely sure about how it works but it has made rounds in the news.
8. Long settling time
When shares used to be traded in the paper format, it used to take up to a month to settle the trade. Once digitisation started taking place in the equity market, the settlement time decreased to 14 days. Currently, an order or trade gets settled within two days.
9. Rule of 72
When people are investing their money in the equity market, they wonder how long it will take to double the investment amount. There is a simple formula that can help you estimate the amount of time your money will take to get doubled.
Simply, divide 72 by the rate of return of that share and you will get your answer. For example, Share A has a rate of return of 8%. 72/8 = 9 years. So, it will approximately take 9 years to double the investment amount.
10. Apple is the largest company by market cap!
Apple Inc. is the world’s largest company by market cap. It has a market cap of over $2.6 trillion as of April 2021. Apple is one of many US companies that are major players not only in the US stock markets but also in markets across the world.
Conclusion
We hope that you have learned something new about the equity market through these lesser-known facts. If you want to further expand your knowledge to succeed in investing, you can check out this course which offers a detailed overview of the equities market. Make sure you do thorough research before and while investing. Happy trading!