History of Trading and Why You Should Know It

• The History of the Emergence and Development of Exchanges
• Market Crisis Review: Tulips and FTX
• The Role of Modern Traders in the History of Trading
• Where Are We All Headed?

Nowadays, we can often hear people saying that crypto trading is a new profession, some kind of modern trend.

But is it true?

Yes, cryptocurrency assets have just arrived recently relative to other financial instruments; their history would not even have 15 years. But, when it comes down to it, crypto is just one of those assets—a financial tool for trading. Also, the idea of trading and what it means to be a "trader" is much broader than you might think. It is not limited to cryptocurrency, a particular exchange, or even our century.

First, the most important thing you should know about trading is that it is a full-time profession. It is not just a hobby or something to fill your spare time with. And, just like any profession, trading has its own history, which shows that it requires great discipline and self-sacrifice. In fact, the theories and principles we use today came from the experiences and contributions of people in the past, which helped the profession grow and develop.

The history of trading is very, very old. It goes back more than 500 years. Trading stocks and currencies dates back much further than we can imagine.

There are many questions that can answer our modern concerns today, especially with what has been happening in this bear market: What happened during the past five centuries? How and when did the first exchange appear? What types of exchanges exist? What were the causes of stock market crises? What’s the similarity between FTX and the tulip? What is the role of today's traders in the history of trading? What are the roles of traders in the modern economy? Finally, where will all these take us next?

The History of the Emergence and Development of Exchanges

Obviously, it was the commodity exchange that gave way to the development of trading.

We deal with the stock exchange every day. In simple words, an exchange is a huge market where sellers exchange assets with buyers. Any goods, currency, or securities can act as assets. However, commodity, stock, and currency exchanges are distinguished from each other. In addition, some experts separately distinguish the market for urgent obligations and cryptocurrency exchanges.

The first securities on the stock exchange arose in Holland thanks to the "changers", the first brokers. In fact, they acted as banks, taking the currency in one place and giving it to the client in another, for which they took a percentage and ensured financial security. The internal books of the money changers were equated with official documents and were considered the guarantee of the transaction.

Over time, in the 14th and 15th centuries, there were so many money changers that bill fairs began to be held. This is how a bill of exchange appeared, a security that provides for a post-dated payment or payment within a predetermined period.

A few centuries later, the center of stock trading shifted to London. In the 16th century, Thomas Gresham, having visited Holland in Amsterdam, decided to build a building for merchants in London, where they could carry out their financial transactions, conclude deals, and negotiate. Henceforth, the first professional community of brokers was founded in London.

These two exchanges, in Amsterdam and London, created the very specific terms that we still use today. For example, the terms "bulls" (who are bullish, as if a bull is pulling the opponent up on the horns) and "bears" (who are bearish, as if crushing with their weight).

Both of these exchanges were able to provide a fairly quick transition from money to securities. In 1771, the Vienna Stock Exchange was founded to trade exclusively in government securities.

Subsequently, the stock exchanges spread quite rapidly throughout the world. In 1790, the first American stock exchange was founded in Philadelphia. A couple of years later, the stock exchange in New York was established. The Tokyo Stock Exchange was established in 1878. In Russia, the first exchange appeared under the direction of Peter I in 1703.

Market Crisis Review: Tulips and FTX

Considering the current market situation, all the events and upheavals that happened in the industry, many people are foretelling the collapse of cryptocurrency, declaring their doubts against it. Many people are anticipating the “death” of crypto trading, signaling the end of its short history.

However, this scenario has happened before, and the fear mongering  lines have been preached more than once already. Now, since the main goal of studying history is to learn its lessons, let's talk about the crises that happened to exchanges and trading in the past.

In the spring of 1559, a tulip bloomed for the first time in the history of Western Europe in the German city of Augsburg. It seemed that the tulip industry would continue to bloom for a very long time. But who would have thought that in 100 years, the tulip would practically bring down the economy of the Netherlands and eventually become a “prototype” of the first stock market crisis in world history.

Among the most infamous market bubbles and subsequent falls was the Dutch tulip bulb market bubble, often referred to as "tulipmania." When the value of tulip bulbs was driven to absurd heights by speculation, the most exclusive tulip bulbs reached six times the national median income at the market's height. People bought bulbs on credit in the hopes of making a profit when they were resold, which contributed to the steep price drop. But after prices dropped, holders had to unload their bulbs for any price or go bankrupt.

Today, the tulipmania crisis serves as a lesson of overleveraging in markets, especially the pitfalls of assets as speculative trading increases.

But the lesson in this story is not about market bubbles. It’s that the economy of the Netherlands did not collapse completely and irrevocably, since we can still see them as a beautiful and developed country.

Just like the current collapse of FTX, it is not capable of destroying the crypto market to the ground. Yes, the total market capitalization of cryptocurrencies fell by 11%. Yes, traders suffered huge losses. Yes, the rate of many coins plummeted. But history teaches us that any market crisis will pass. No matter how terrible it may seem, a new cycle will always come to replace it.

Now, speaking of market crises, they actually played an important role in the history of world exchange trading. For example, many exchanges all fell in the 20th century. The first terrible stock market crisis was "Black Thursday" on October 24, 1929. It is considered the beginning of the Great Depression in the USA. However, this crisis contributed to the maturation of exchange trading, which started to attract much more attention from the state.

On October 17, 1973, the next "Judgment Day" crisis broke out, receiving such a terrible biblical name because of the “Judgment Day” war between Israel and the Arab states. Member states decide not to sell oil to countries that support Israel, which leads to a fall in the financial markets of America by 45% and England by 73% during the day. It was a terrible crisis! A huge number of companies lost money, dealing a massive blow to the banking system. Nevertheless, the world economic system survived.

The next crisis was October 19, 1987, called "Black Monday", when the Dow Jones fell by 22.6%.

On September 15, 2008, another well-known stock market crisis swept around the world, and it was associated with the mortgage bubble in America. It’s a bubble of insurance companies, reinsurance, and derivatives—complex financial instruments that banks sold to each other. However, one of the main consequences of this crisis was that the top 10% of companies became even richer.

The Role of Modern Traders in the History of Trading

Although the concept of trading stocks and currencies has been around for a long time, the term "trader" in the Russian-language dictionary is quite new. While for the English speaking population, it is a well-known abstract word that many use to describe someone who buys and sells goods for profit. The Russian ear is more accustomed to the word "merchant."

Traders and brokers have always been the most important links in the chain. These are the ones who make the market work, who make deals, and who keep the overall market balanced. Trading works best when there is a human factor involved, and traders are key players in this entire chain of events.

It is no secret that the basis of exchange trading is human psychology, especially the psychology of a trader. Trading can be described with a rather cliched phrase: “Everyone ran, so I ran, and why I ran may not be clear at all." The market is largely controlled by the spontaneous feelings of the crowd, which are often the cause of losses. The dumping of shares by some brokers can be followed by the second, third, and fourth. It is this psychology that provides the market mechanism as we know it today.

Today's traders are constantly changing and adapting to new technological advances to stay relevant. Advanced tools and features are being incorporated on exchanges. Automated trading journals are now being utilized to improve strategies and minimize emotional trading.

Traders are now much more open than in the past, and there are many more opportunities for people from all over the world to trade for themselves.

Where Are We All Headed?

Exchange trading as an institution has evolved from a small fair where the primary "assets" were fish and grain. Now everything has come to the point where any more or less large company is traded on the stock exchange, but only shares that have passed several levels of control are allowed to be exchanged, and all reporting of such companies is public.

Today, we deal with exchanges every day. Some people are engaged in professional investments, and some are hardcore crypto traders. Trading is now happening online, but it is done with the help of brokers and with the help of the stock exchange as a financial institution. Without such a mechanism, the modern economy will not be possible.

Obviously, the development of technology has contributed to stock trading, and now brokers can give commands faster, receive information, and execute orders from their clients faster. With the rise of computers in the 1980s, special software programs were made to handle exchange transactions, which are still in use today.

Furthermore, the system is being improved further. We already see exchange trading on our mobile phones using different applications. Any eleventh grader can learn trading, and they can easily understand why some stocks are more expensive than others and are able to explain it. To put that into perspective, a few decades ago, the average broker could hardly explain its purpose and job to the general public.

Conclusion

It’s amazing how much wisdom we can gain from understanding the historical transformation of the trading industry. Through a retrospective lens, we can see that financial markets are cyclical. The bull market comes and goes. The bear market is only temporary. Unfortunately, market crashes happen and bubbles pop. In fact, the FTX incident is not all that unusual. Such blowbacks are actually a crucial part of the advancements in the industry.

Surely, trading technology and systems will continue to evolve for the better.

For example, tracking a trader's progress is now done using an automated trading journal like Trader Make Money. Before, many traders used pen and paper or Excel sheets to analyze their trading behavior and strategies. Now, professional crypto traders  use this type of software to automate their trading journals and use intuitive widgets on a customizable dashboard. Using Trader Make Money, multiple accounts and exchanges can be easily integrated with a powerful analytics software.