History: 17th Century to 21st Century: Retail Investors.
Retail trading is the practice of individual investors using their own funds and accounts to purchase and sell financial instruments such as stocks, bonds, currencies, commodities, and derivatives. Retail traders are frequently referred to as DIY investors or self-directed investors. They are different from institutional traders, who work for major institutions like banks, hedge funds, pension funds, and mutual funds and execute trades on their behalf.
The development of stock markets in the 17th and 18th centuries can be linked to the history of retail trading. In Amsterdam, the first stock exchange opened its doors in 1602, where Dutch East India Company shares were traded. At first, the market was only open to wealthy merchants and nobles since they had access to brokers and agents who served as middlemen between buyers and sellers. However, more people from various socioeconomic groups and backgrounds started to participate in the trading activity as the market expanded and became more accessible.
Actual ledger from the first public IPO, The VOC charter, the organization's founding document from March 20, 1602, had made mention of the IPO. Article 10 said that "all the inhabitants of these lands may purchase shares in this Company." There was no minimum or maximum investment amount; subscribers could choose their own amount. Posters announcing the IPO would be placed up, according to the article that followed.
The South Sea Bubble in 1720, when a speculative frenzy over the shares of the South Sea Company drew thousands of investors from all walks of life, was one of the earliest instances of retail trading. Many people purchased the shares in the hopes of becoming rich by taking out loans or selling their belongings. However, the company's failure to keep its promises caused the share price to crash, and the bubble to burst. Many small-scale retailers lost their savings and filed for bankruptcy.
The Wall Street Crash of 1929, which signaled the end of the Roaring Twenties and the start of the Great Depression, is another significant incident in the history of retail trading. When investors recognized the stock market was inflated and unsustainable, a wave of panic selling rushed through the New York Stock Exchange, setting off the crash. Many retail investors who had used borrowed funds to buy stocks on margin were unable to fulfill margin calls and were forced to liquidate their investments at a loss. Millions of people worldwide were impacted by the crash, which destroyed billions of dollars' worth of wealth.
The environment of retail trading has changed as a result of technological and regulatory advancement in the 20th and 21st centuries. Retail traders now have more affordable and convenient ways to enter the markets and carry out their trades thanks to the development of electronic trading platforms, online brokers, discount brokers, and robo-advisors. The number of alternatives and techniques available to individual traders has increased with the advent of new financial instruments including exchange-traded funds (ETFs), options, futures, contracts for difference (CFDs), and cryptocurrencies. To safeguard retail traders from fraud, manipulation, and abuse by market participants, laws and regulations like the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and the Dodd-Frank Act of 2010 were passed.
Some of the most influential figures in retail trading history include:
- Jesse Livermore:
Known as the "Great Bear of Wall Street" and the "Boy Plunger," Livermore was a renowned trader who amassed and forfeited a number of fortunes over his career. He was renowned for his insightful reading of market psychology and trends as well as his audacious bets against the market. He participated in both the Wall Street Crash of 1929 and the Panic of 1907, making millions by shorting stocks during each event. Reminiscences of a Stock Operator, a famous trading book he also penned, is still read by many traders today.
-The "father of value investing," Benjamin Graham :
, was a pioneer in fundamental analysis and security selection. Based on an analysis of an undervalued stock's intrinsic value, earnings potential, and margin of safety, he devised a methodology. In addition, he coached a number of great investors, including Warren Buffett, who is recognized as one of his most well-known pupils. He also taught at Columbia Business School.
- George Soros:
One of the most successful hedge fund managers and currency speculators in history. Soros is known as "the man who broke the Bank of England." His prediction that the British pound would have to devalue or leave the European Exchange Rate Mechanism (ERM) in 1992 is what made him most famous. From this trade, he allegedly generated over $1 billion in profit while also sparking a financial crisis in Britain.
- Peter Lynch:
Considered to be one of the best mutual fund managers of all time, Lynch oversaw the Fidelity Magellan Fund from 1977 to 1990, with an average annual return of 29%. He adhered to the straightforward maxim, "Invest in what you know," which meant that he sought out businesses that he was familiar with and that had a promising future. A number of his best-selling books on investing, including "One Up on Wall Street" and "Beating the Street," were also written by him.
- Kathy Lien:
Lien, a former chief strategist at FXCM and BK Asset Management, is regarded as one of the world's foremost authorities on currency trading. She frequently contributes commentary to media sites like Reuters, CNBC, and Bloomberg. She has authored a number of books on forex trading, including "Day Trading and Swing Trading the Currency Market" and "The Little Book of Currency Trading".
Any more.
In closing, Retail trading has evolved from a privilege reserved for the wealthy to a widely accessible activity for individuals from all walks of life. From the early days of stock markets to the modern era of electronic trading platforms, technology and regulation have played a pivotal role in shaping the landscape of retail trading. Influential figures like Jesse Livermore, Benjamin Graham, George Soros, Peter Lynch, and Kathy Lien have left their mark on the industry, each with their unique approaches and contributions. While retail trading presents opportunities for individuals to grow their wealth, it is essential to recognize the risks involved. The lessons learned from past episodes, such as the South Sea Bubble and the Wall Street Crash, remind us of the importance of informed decision-making and prudent investing. As we look towards the future, it is likely that the landscape of retail trading will continue to evolve, driven by advancements in technology, regulatory developments, and emerging financial instruments. However, the core principles of risk management, knowledge, and adaptability will remain crucial for retail traders to navigate the ever-changing markets successfully.
In the related ideas you will see my post about the early days of TradingView and also the history of Japanese candlesticks
The development of stock markets in the 17th and 18th centuries can be linked to the history of retail trading. In Amsterdam, the first stock exchange opened its doors in 1602, where Dutch East India Company shares were traded. At first, the market was only open to wealthy merchants and nobles since they had access to brokers and agents who served as middlemen between buyers and sellers. However, more people from various socioeconomic groups and backgrounds started to participate in the trading activity as the market expanded and became more accessible.
Actual ledger from the first public IPO, The VOC charter, the organization's founding document from March 20, 1602, had made mention of the IPO. Article 10 said that "all the inhabitants of these lands may purchase shares in this Company." There was no minimum or maximum investment amount; subscribers could choose their own amount. Posters announcing the IPO would be placed up, according to the article that followed.
The South Sea Bubble in 1720, when a speculative frenzy over the shares of the South Sea Company drew thousands of investors from all walks of life, was one of the earliest instances of retail trading. Many people purchased the shares in the hopes of becoming rich by taking out loans or selling their belongings. However, the company's failure to keep its promises caused the share price to crash, and the bubble to burst. Many small-scale retailers lost their savings and filed for bankruptcy.
The Wall Street Crash of 1929, which signaled the end of the Roaring Twenties and the start of the Great Depression, is another significant incident in the history of retail trading. When investors recognized the stock market was inflated and unsustainable, a wave of panic selling rushed through the New York Stock Exchange, setting off the crash. Many retail investors who had used borrowed funds to buy stocks on margin were unable to fulfill margin calls and were forced to liquidate their investments at a loss. Millions of people worldwide were impacted by the crash, which destroyed billions of dollars' worth of wealth.
The environment of retail trading has changed as a result of technological and regulatory advancement in the 20th and 21st centuries. Retail traders now have more affordable and convenient ways to enter the markets and carry out their trades thanks to the development of electronic trading platforms, online brokers, discount brokers, and robo-advisors. The number of alternatives and techniques available to individual traders has increased with the advent of new financial instruments including exchange-traded funds (ETFs), options, futures, contracts for difference (CFDs), and cryptocurrencies. To safeguard retail traders from fraud, manipulation, and abuse by market participants, laws and regulations like the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and the Dodd-Frank Act of 2010 were passed.
Some of the most influential figures in retail trading history include:
- Jesse Livermore:
-The "father of value investing," Benjamin Graham :
, was a pioneer in fundamental analysis and security selection. Based on an analysis of an undervalued stock's intrinsic value, earnings potential, and margin of safety, he devised a methodology. In addition, he coached a number of great investors, including Warren Buffett, who is recognized as one of his most well-known pupils. He also taught at Columbia Business School.
- George Soros:
- Peter Lynch:
- Kathy Lien:
Any more.
In closing, Retail trading has evolved from a privilege reserved for the wealthy to a widely accessible activity for individuals from all walks of life. From the early days of stock markets to the modern era of electronic trading platforms, technology and regulation have played a pivotal role in shaping the landscape of retail trading. Influential figures like Jesse Livermore, Benjamin Graham, George Soros, Peter Lynch, and Kathy Lien have left their mark on the industry, each with their unique approaches and contributions. While retail trading presents opportunities for individuals to grow their wealth, it is essential to recognize the risks involved. The lessons learned from past episodes, such as the South Sea Bubble and the Wall Street Crash, remind us of the importance of informed decision-making and prudent investing. As we look towards the future, it is likely that the landscape of retail trading will continue to evolve, driven by advancements in technology, regulatory developments, and emerging financial instruments. However, the core principles of risk management, knowledge, and adaptability will remain crucial for retail traders to navigate the ever-changing markets successfully.
In the related ideas you will see my post about the early days of TradingView and also the history of Japanese candlesticks
C Nicholas Downie
