What is the New York Stock Exchange?

The New York Stock Exchange (or NYSE) is the largest stock exchange in the world. Think of it as an organized, fast-paced flea market where buyers and sellers from all over the world come to trade U.S. stocks (and now some foreign stocks, too). It’s where over 2,800 of the largest US companies have their shares listed. On average, over 1 billion shares are traded every day. It is located on Wall Street in New York City.

History

Before the New York Stock Exchange became as powerful as it is today, it began as a group of merchants who met near a tree in trees in the late 1700s to trade bonds (from cities, states, and even Revolutionary War bonds) and some stocks from the growing businesses of New York City. These merchants met near the intersection of Wall Street and Broad Street until they pooled their resources in 1817 to rent a building on Wall Street so they could continue to meet and get out of the cold and rain. This building became the first New York Stock Exchange (NYSE). During the 19th century, the Industrial Revolution began to sweep across the country and the NYSE was at the center of financing its growth. Thousands of companies were started and needed access to cash to finance their growth. Many of them sold shares on the NYSE to raise capital to build factories and expand. The first half of the 19th century also saw a huge boom in canal construction; canal construction was usually financed in part by government funding (raised by selling bonds) and by selling shares in the canal companies to investors (which were sold in shares that paid dividends based on the canal’s tolls once completed). In the 1840s, canal companies were replaced by railroad construction, which was almost entirely financed by selling shares. It was during the railroad boom that the NYSE shifted from being centered around bond trading to focusing mostly on buying and selling stocks. However, it wasn’t just because of the railroads that this transition took place: the invention of the telegraph allowed news of stock prices to reach investors immediately, rather waiting for newspapers and other publishers to compile lists at the end of the day or week (which would often include nowhere near all the stocks currently on the market). This also allowed buyers and sellers over large distances to trade relatively easily, as it could be done through brokers in the respective cities who specialized in trading. The industrialized companies with their huge growth (and thus potentially very valuable stocks) were the biggest reason why investors on Wall Street started moving into stock trading rather than bonds. With a bond, the return is usually based on the probability that the person borrowing the money will “fall into maturity” and fail to pay it back. Share prices are based on the expected future profits of the business they represent ownership of. Before the Industrial Revolution, most companies outside of very large trading organizations grew very slowly and usually did not issue any public shares at all. For most investors, buying bonds was either risky (due to a risk of default) or had fairly low returns, and was the only option available. Industrial companies often promised big growth and big profits and were eager to sell shares to the public to raise capital quickly (so they could start businesses faster), encouraging new investors to participate. The huge increase in growth in canal and railway stocks was transferred to other industries and has grown ever since.

The NYSE was the center of some of the most important economic events in the United States, including the extremely well-known “Black Thursday” of 1929, which is one of the events that started the Great Depression.

NYSE today

The NYSE is still the largest stock exchange in the world and is likely to remain so for a very long time. Traders from all over the world still meet to trade on the NYSE floor, but as more and more trading by large financial firms is done entirely electronically, and more individuals trade stocks using their online brokerage accounts, the NYSE and Wall Street serve as a global symbol for the world of investment and finance.

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