The expression "financial market" has a wide meaning. This term refers to any platform where the organized process of trading in securities takes place: stocks, bonds, currencies and derivatives. The largest in the world are the US financial markets. Their turnover amounts to trillions of dollars. Every day there are transactions with shares of several thousand companies. Almost all economists in the world are involved in analyzing US financial markets, as what is happening on American trading floors has an immediate effect on other countries.
Story
Equity securities appeared in the 17th century during the transition from feudalism to capitalism. The first international trading companies, such as the famous East India, sought to attract investment. The need to complete stock transactions triggered the creation of stock exchanges in European countries. The industrial revolution contributed to their spread and development.
Debt obligations have been known since time immemorial. They were used in ancient civilizations long before our era. Some Sumerian cuneiform tablets discovered during archaeological excavations are modern bills of exchange. The practice of issuing government bonds was widespread already during the Napoleonic Wars. The successful operation with British debt securities, carried out on the London stock exchange by one of the representatives of the Rothschild dynasty during the Battle of Waterloo, became history.
Formation in the USA
In North America in the second half of the 19th century, the rapid development of industry made investment in stocks of various companies extremely popular. The US financial markets are significantly ahead of European ones in the scale and degree of influence on the processes occurring in the economy. In addition, a detailed legal mechanism for organizing securities trading was developed in America.
US Financial Market Characteristics
In the course of history, two models of attracting investments were formed. The first, focused on bank financing, is called continental. Its distinguishing features are non-public offering of securities, a relatively small number of shareholders and a low level of development of the secondary stock market. In this system, the main role is played by bond borrowing, and the position of key participants in the process of capitalization of companies is occupied by large commercial banks. This is not to say that the continental model of the financial market is characteristic of the United States. Rather, it is characteristic of European countries and Japan.
The second investment attraction model is called Anglo-Saxon. Its main features are a high share of equity capital, the limited participation of banks in lending to the economy and the existence of a large number of different investment funds. For the US financial markets, this particular model is characteristic. About one hundred million American citizens invest their money in stocks. The use of securities as a tool for saving and increasing has long become a tradition. Detailed information about the features of the American model can be found on the Internet in PDF format. The US financial market ranks first in the world not only in volume, but also in branching.
Brokers
American stock exchanges provide broad opportunities for both issuers (companies that raise capital by issuing shares) and investors. Brokers act as intermediaries between those wishing to buy and sell securities. Professional bidders fall into two categories. The former are called full-cycle brokers. They not only make deals in the interests of their clients, but also provide consulting services. Full-cycle brokers provide analytical information, help in making decisions on the formation of investment portfolios and give advice on limiting losses in the event of an unfavorable situation. For their work, they charge very high commissions. Brokers of the second category are called discount. Their customers make their own investment decisions. For a small fixed fee, discount brokers execute orders to buy or sell securities.
Speculation
US financial markets are divided into primary and secondary. Companies wishing to attract investment carry out the issue of shares and place them on the stock exchange. At this stage, related to the primary market, capital flows into the economy. In the future, securities fall into free circulation on stock exchanges and often change owners as a result of buying and selling operations. This is called a secondary, or speculative, market. In this case, the funds do not flow into the economy, but pass from one merchant to another.
Regulation
The current model of the US financial market is characterized by the presence of tight control by state authorities. American laws governing exchange activities are considered one of the most stringent in the world. The legal mechanism, which has been improved over many decades, eliminates the possibility of manipulation and protects the rights of issuers and investors. Established in 1934, the Securities Market Commission continuously monitors signs of using insider information and prosecutes bidders who violate the rules.
Client accounts in brokerage companies are subject to compulsory insurance. In the event of bankruptcy of a financial institution, the loss of non-professional bidders is compensated from the funds of a special fund. Exchanges conduct daily clearing, during which they check whether the brokerage companies have sufficient cash to secure open positions.
To prevent panic crashes in the United States, there are strict rules that limit the ability to play for a fall. Trading stops if market indices fall by a certain percentage within one day. Stock exchanges have the right to impose a complete ban on opening short positions. Futures and options platforms with increasing volatility automatically increase the requirements for the minimum size of guarantee coverage.
OTC Market
At the end of the 20th century, decentralized systems appeared that organized transactions with securities. They made a serious competition to the classic exchange platforms. The most striking example of such a system is known under the acronym NASDAQ, which means "Automated quotes of the National Association of Securities Dealers." This market has become the world's first fully electronic stock market. Another revolutionary innovation - NASDAQ - is the presence of a large number of competing market makers (liquidity providers). Users of a decentralized system have the opportunity to get the best quote. NASDAQ specializes in stock trading in high-tech companies. The listing procedure went through more than three thousand issuers. The automated quotes system NASDAQ has received the status of a licensed exchange and has become the second largest financial market in the United States. In 2016, its capitalization exceeded six trillion dollars.
Futures market
The conclusion of transactions for the purchase and sale of various goods with deferred delivery and payment has been practiced since ancient times. Nowadays, the global financial market in the United States is influenced by the tremendous volume of futures trading. The largest platform for operations with derivatives contracts on the planet is the Chicago Mercantile Exchange. It trades futures for oil, natural gas, gold, silver, platinum and palladium. At the Chicago Mercantile Exchange global prices for many types of raw materials are formed. The total volume of transactions with futures is estimated in trillions of dollars and is ten times higher than the turnover of the cash market.
Crises
The American economy has repeatedly experienced serious shocks. In 2000, a catastrophic collapse of the securities of high-tech companies occurred. First of all, it dealt a heavy blow to the over-the-counter NASDAQ market. Optimism about the prospects for the development of a business related to information technology turned out to be unfounded. This caused a wave of bankruptcies of Internet companies and the fall of the NASDAQ stock index.
The terrorist attack on the World Trade Center in 2001 resulted in multibillion-dollar economic damage and the closure of the New York Stock Exchange for a week. The overall decline in the stock market was partially offset by rising stock prices of pharmaceutical and food companies.
The 2008 mortgage crisis led to the bankruptcy of large financial institutions and the loss of several million jobs. According to some estimates, the US economy has lost one trillion dollars. The crisis caused the worst stock market crash in the last 20 years. Major US stock indices fell 30-40% over the course of several months.