History of the Financial Service Industry and Online Trading

In these series of posts, I will synthesize the history of the financial service industry. Firstly, I will look into how the financial market and online brokers emerged. In a later post, I will talk about how the online brokerage industry looks like today.

As such, I will not examine the financial service industry as a whole, but rather how it has contributed to and affected the online trading industry.

History of the Financial Service Industry

Banks in general are as such a very old phenomenon, that dates back to the ancient world, where gold in shape of plates were stored in temples, as these were believed to be the safest place to store valuable goods at a time around the 18th century BC. This was the first known evidence of the activity that is today better known as banking. Further evidence of trading dates back to the ancient Greece, where financial transactions like money exchange and even credit were conducted.

In return for money a moneylender would write a credit note in one port and the client could then cash it in another port, saving the client the danger of traveling with coins. The ancient Rome adopted and improved on this financial system by introducing greater administration as well as charging interest on loan and paying interest to the moneylenders.

Along with the fall of the Roman Empire, collapsed the trading, making bankers less necessary than before. The Christian church hastened their demise by its hostility towards the charging of interests. The church prohibited this kind of usury as it was seen as immoral. However as the economic activity expanded, and the Christian Church´s power increased, the papacy were the first to insist that interest should be paid on loans related to a risk.

Following this shift in the Churchs policy regarding usury, it became more acceptable to be a financier and the development of the financial system took place.

History of brokers and the stock exchange

The first brokers appeared in the 12th century in France. The “courratiers de change” were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. Later in 13th century commodity traders in Bruges gathered inside the house of a man called Van der Burse, and in 1309 they institutionalized these until then informal meetings and became the “Bruges Bourse” which is how the “bourse” as we know it today originated. In the middle of the 13th century Venetian bankers began to trade in government securities and by 1351 the Venetian government outlawed the spreading of rumors intended to lower the price of government funds. This was the first known deregulation made from the government in order to keep the financial market freely floating.

Soon London rose as the financial centre as John Castiangs began in 1698 to issue a list of stock and commodity prices called “The course of exchange and other things” from his office at Jonathans Coffee House in London. A growing community of traders established by march 3rd 1801 on the foundation of Jonathans Coffee House, London Stock Exchange (LSE), with legal regulations and formal membership subscription.

The Emergence of Online Brokers click here to read

Online Trading during the first years of the new millennium click here to read

Uriel

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UrielHistory of the Financial Service Industry and Online Trading