The New York Stock Exchange on Wall Street has been made so famous through Hollywood and the news that many folks who are new to the world investing may believe that it is the only stock exchange out there. However, there are around 60 major stock exchanges throughout the world. One of those is the London stock market, often referred to as the London Stock Exchange.
But what is the LSE? How does it work? For this information and more, keep reading.
What is the London stock market?
Would you be interested in one of the oldest and largest stock exchanges in the world? Then add the London Stock Exchange to your list of those to check out.
The London stock market was originally established in 1571 as The Royal Stock Exchange in the City of London in England. At that time, notoriously rude stockbrokers were banished to coffee houses around London that served as make-shift financial exchange buildings where the lists of prices of popular commodities were listed. From these locales, brokers made trades on The Royal Stock exchange, much as modern stockbrokers do today.
Read also: A simple guide to start investing in stocks
This British stock exchange became The London Stock Exchange after World War II. The post-war era yielded great growth in many European stock markets. During this period the London stock market also merged with smaller regional stock exchanges from Scotland, Ireland, and other parts of Great Britain. This made The London Stock Exchange even stronger and allowed it to include more companies.
How does the London stock market work?
The London stock market works much like any other large stock exchange. A stock market is like an auction house. In an auction house, objects like antiques are auctioned off to the winning bidders. It is a similar process in the stock market: brokers and traders negotiate to buy and sell stocks in order to turn a profit. They are able to do so by selling securities for more than they originally bought them.
Companies on the stock exchange begin by listing shares (or imaginary slices of their company) at a particular IPO (initial public offering). An IPO is the initial price of stock when a company first becomes publicly traded on the stock market. After a company’s debut, its stocks are then bought and successively sold and rebought.
As the company grows, its stock prices may increase, thus allowing the investors to turn a profit through resales. The opposite may also happen. This process is also beneficial for the company because it allows them to raise money through the sale of stock. Many companies use these profits to expand and further develop their companies to try to make them even more profitable.
The London Stock Exchange is so large that today it is used as a way to measure the UK’s economy. After decades of growth in the post-war era, in 1984, the London stock market grouped together the 100 largest Public Limited Companies (PLCs) into an index called the Financial Times Stock Exchange (FTSE), also adorably pronounced as the “footsie”.
Similar to the US’s Dow Jones, the fluctuations of the FTSE is a useful gauge of the UK’s overall market health. So, aside from being the third-largest stock exchange in the world and an opportunity for investors and companies alike, the London stock market also works as an instrument to measure the UK’s financial wellness.
The bottom line
While it might seem like the New York Stock Exchange is your only option for investing in the stock market, don’t forget about other international options like the London stock market.
As one of the largest and oldest stock exchanges in the world, the LSE is a great option for investors seeking to diversify their holdings as part of a smart investing strategy. For more ideas on how to keep your financial fitness in check, check out the rest of the Academy financial and investment education library.