Even if you’ve never set foot in Manhattan, everyone has an idea of what it means to work on Wall Street with all its frenetic energy and activity. Images of traders in brightly colored jackets jumping up and down on the floor of the stock exchange, voices straining to be heard over each other as deals are made, bells ringing to signal the start and finish of each trading day. These perceptions, while still very much a reality, are becoming less representative of today’s investment world.

Today, more trading is being done in cyberspace, specialists are beginning to become obsolete, and trading floors now exist in the ether more than on hardwood. Nonetheless, it’s important for any investor to understand the various entities that comprise the investment market and how they work. The next few blogs will prepare you to enter the walk down Wall Street confidently.

How Wall Street Works

In 1792, a handful of businessmen opened the New York Stock Exchange under a buttonwood tree near a quiet avenue called Wall Street. That exchange and “The Street” were known as hard-nosed places where great fortunes could be made – but at great risk. Most investments were for a very short term, and traders on the exchange tended to deal for themselves first, and for their clients if anything as left over.

For years, Wall Street insiders had the markets virtually to themselves. A lopsided playing field gave brokers, market makers, traders, and specialists a big advantage over small-account investors. Typically, insiders were in at the start of a stock’s run-up and bowed out long before the stock tanked. Individual investors were left holding the bag. Information was peddled to the highest bidder, and investment advice was often provided by “tipsters,” a breed of information merchant who delighted in spreading inside information. After many decades as a functioning exchange, the fastest form of information became the ticker tape, which reported only prices.

Without adequate information, the investor was at the mercy of the market. After the crash of 1929, financial reformers made substantial gains in cleaning up the markets, and investors eventually benefited. Much improved methods for analyzing risk were developed, along with efforts to introduce what is now called “transparency.”

For years, the term investor meant institutional investor. Pension funds, insurance funds and mutual funds dominated the markets, acting on behalf of individuals but exercising their own special brand of institutional influence. Institutional investors remained in the driver’s seat until the NYSE introduced negotiated commissions in 1975. This scheme opened the door for individual investors by allowing discount brokers to begin offering bare-bones brokerage services to retail investors.

Another 20 years and unforeseen new advances in technology – particularly the advent of the World Wide Web – were needed before the full implications of this power shift from institutional to individual investor would be felt. By the onset of the 1990s, it was clear that individual investors were serious players in the Wall Street World.

It’s true that there are no guarantees when it comes to investing. But with the creation of online investing, and an aggressive play for smaller investors by the two leading stock markets - the New York Stock Exchange and the NASDAQ – buying and selling investments that interest you will only get easier and, as important, less expensive.

Competition, both domestic and global, will continue to make stock transactions more transparent and more accessible for all investors. By understanding how the different stock markets work and compete for your business, you’ll be better equipped to benefit from your own investing knowledge.