I’ve heard a lot of talk about Wall Street and how it’s this evil place. Stealing money from everyday Americans. I’m going to tell you something, though; they run our economy. The average American citizen has no idea what Wall Street is or does.
I am here to change that. Come with me as we explore together what Wall Street actually is and. Why it’s important that we not only understand where our money comes from but also who controls it.
Wall Street – The Term “Wall Street” Can Refer Either To:
- An actual street in New York City where the stock exchange was first located; or
- A metaphorical reference to all electronic exchanges. Including NASDAQ and the over-the-counter (OTC) exchanges.
Before stocks were traded electronically, investors. Would meet at designated times to trade face-to-face on the street.
According to Wikipedia: “The origins of trading in Boston date from 1780. When Congress created a system of government securities for financing the American. Revolutionary War and appointed John Hancock as its agent for selling bonds.”
To keep orders straight with all the participants, they would yell their orders down the line to those who had already placed theirs.
When one broker yelled that he was going to sell. Those that wanted out would place their hands behind their back or under their coat as a signal. This later became known as someone ‘selling short.’
The term is still used today when trading stocks.
- The New York Stock Exchange (NYSE) is the largest stock. Exchange in the world by market capitalization. The average daily trading value was approximately $153 billion in 2013. While the NYSE’s most recent year-end closing value was just under $22 trillion. While it’s based in New York City, it trades stocks of every major corporation. Throughout the United States and around the world. Essentially anywhere U.S dollars are traded for another currency or security. NYSE has a presence.
- NASDAQ is also an electronic stock exchange. It is considered to be part of Wall Street because all securities. Are traded using computer networks that facilitate transactions between buyers and sellers. Through an electronic auction system that drives market prices. It is also considered to be part of Wall Street because it’s located in New York City.
- Over-the-counter (OTC) exchanges are more informal, less regulated markets. That trade stocks of local or regional companies. Most often small start-up companies or failed larger ones. These are typically not open to the general public, and you will not find advertisements. For them through an internet search engine. They are usually only accessible by investors. Who are either directly connected to the company. Or are offered access by a broker who carries their accounts with them.
- Other types of securities traded on Wall Street include bonds. Futures contracts, commodities, options, and derivatives. On any given day, billions of dollars worth of stocks are bought. And sold by investors through the aforementioned exchanges. Every investor in America will play some part on Wall Street. Whether they realize it or not. Wall Street’s primary purpose is to raise capital for corporations. Every time a corporation needs money, they do so by issuing securities of some sort (stock, bond, etc). That can be traded publicly, raising funds to invest back into their company. This allows them to grow their business and reinvest.As an example. If you’ve ever seen The Social Network (no need to be embarrassed. This blog post has maybe one of the best movies of all time). One scene takes place when Mark Zuckerberg is discussing Facebook with Sean Parker at a bar. He says something along the lines of “. I have 50 billion dollars worth of Facebook stock, which is really cool. “This is an example of what Wall Street does. It provides a platform for corporations, the average investor. And companies to raise money.
- Wall Street has become a catch-all term referring to the world of finance in general. It is both an actual street in New York City. Where the original stock exchange was located as well as any electronic exchange that deals primarily with bonds. Options, futures contracts or derivatives including NASDAQ and OTC exchanges.