In our introduction, we mentioned how the Romans contracted public works to companies owned by the public through Parets, and how the British East India Company was the first modern-day company to let outsiders invest in their Far East trading profits. We talked about the first stock exchange to trade shares in Amsterdam. Actually, the Dutch Bourse had been where merchants traded diamonds long before that, and it seemed the logical place to trade shares of the DUTCH East India Company.

Let’s go back to the top. A company sells shares of itself to raise funds. It can do that privately or publicly. For years, you couldn’t do a public offering on the New York Stock Exchange before you had already shown certain success with your privately-owned shares. Thus, for example, Disney issued its first common stock in 1940. You could trade them over the counter but not at an exchange. It wasn’t until 1957 that they held their initial public offering – IPO in short – on the New York Stock Exchange.

Besides public or private, there are two kinds of shares – by the way, there’s no real difference between the two words: stock and share. We have common and preferred shares. Common-share holders can vote at board meetings. As a result they’re considered partners in the company’s success and failures. If the company goes bankrupt, they’re amongst the last to be remunerated for any shares they’re left holding. Preferred shareholders CANNOT vote. Subsequently they’ll be remunerated alongside other debt holders… making them “preferred”.

Now, once upon a time, shares were printed on actual paper, and those papers had an actual value. When you exchanged them, you had to inform the exchange or company. Today, we have less and less paper, and we’re coming to rely more and more on electronically registered shares. You can be quite sure that that’s one MORE venue where the blockchain we talked about last lesson will become invaluable.

Which brings us to ICOs – initial COIN offerings. Before cryptos, more and more people were starting to fund their new initiatives with CROWDFUNDING – placing an advert on the internet and letting people donate money. Your investment wasn’t actually deducted unless a specified minimum had been achieved, and you became a sort of partner in the initiative. A kind of user-friendly over-the-counter share.

With the advent of cryptocurrencies, many companies are issuing cryptos for funding. Again, this means that over-the-counter trading is gaining huge momentum on account of traditional stock exchanges. They’re unregulated, sometimes dangerous and you have nobody to complain to when things go wrong. Still, they DO represent an alternative way of doing things after the 2008 financial meltdown and loss of confidence in the old way of doing things.

OK. Back to shares. Once they’ve been issued at an exchanges primary market, they can be traded on an exchange’s SECONDARY market or – indeed – over the counter. Here, we come up against market makers, more often than not broker-dealers who retain sufficient assets in their inventories to price the shares independently.

Because – and this is important – trading shares is expensive. Quite often, an exchange won’t let you trade less than a hefty NUMBER of shares. Usually there’s taxes to pay on stock-trading. And, of course, if a stock takes a nose-dive, you’re stuck with it. You can either sell it at a loss or hang on to it in hopes that it will recover.

Trading stock CFDs, on the other hand, is easier and usually cheaper, and – of course – you can SHORT the company. Invest in its LOSING value. Again, as with commodities and Forex, online trading lets you access all the world’s markets, which means you can trade nearly around the clock.