- Now that we know what a stock is
and what a bond is,
let's talk about stock markets and bond markets.
A stock market or stock exchange
is just a place either physical or virtual
where people can come together and trade stocks.
For example, the New York Stock Exchange started back
in 1792 under a sycamore tree in New York
on Wall Street
where people who owned stocks or people
who represented those who owned stocks
could get together and trade those stocks.
A stock exchange.
An example of a virtual exchange
is the NASDAQ, started in 1971
as just a computer system
where people could post up the fact
I own some stocks and I want to sell them
or I want to buy some stocks.
It was a virtual meeting place.
The largest stock market in the world
is the New York Stock Exchange
and the second largest stock market
in the world is the NASDAQ
which started this trend towards more virtual stock markets.
Most stock markets now are not physical meeting places.
Most stock trading happens virtually through computers
but it all started back in 1792
under a sycamore tree on Wall Street.
Now here are some unsettling questions to consider.
Are stock markets just places for people to gamble?
Is there any social value to a stock market?
Well, let me illustrate the social value
of a stock market
using something with which we're all familiar,
buying a car.
Let's say you're going to buy a brand new car for $30,000.
After five years, this car can be sold
as a used car for $15,000
but does the existence of this used car market
impact me when I'm originally thinking
of buying the new car?
Do I care that there's a used car market out there?
Yeah, I do because I know if I buy the car now,
if I get tired of this car after a year or two
or five, I'll be able to sell it to somebody else.
The existence of the used car market
makes it more likely that I'll buy the new car
because I can get rid of it at some time
in the future if I want to.
This helps the new car dealer sell new cars
because buyers are more willing to buy new cars
knowing that they won't be stuck with them forever.
You can think of a stock market
as just a place to sell used shares of stock.
The shares were originally issued to shareholders
and now those shares are traded
on the used share market.
Just as with new cars and used cars,
the existence of a stock market
makes shareholders more wiling to invest
and buy shares in the first place.
Shareholders think okay,
I'll invest in this company
because if I decide I don't want to be an owner
in this company anymore
and I want to take my money somewhere else,
I can sell my shares in the used share market.
This is part of the social value of a stock market.
The existence of the stock market
makes it more likely that people will invest
in stocks in the first place.