For about a year, ships would largely be cut off.
No news, no contact.
Four centuries ago, there was no satellite communication or internet.
Then they would return (if things went well) with traded goods.
The company that owned the ships was traded on the stock markets, just like today.
The stock markets are not new.
The tricks used to make a quick buck aren’t new either.
In the 1600s, Amsterdam was the biggest stock market in the world.
Just like us, they would trade stocks of companies. Very, very few companies.
Companies back then would offer shares to investors to raise money for high-cost expansion projects — also exactly like our times.
What was different was the industry.
Back then, sea routes to far off places had been discovered.
Namely, these were routes to India and South-East Asia. Spice routes, these sea routes were called.
A ship would leave European waters and sail down the Atlantic Ocean, around Africa, across the Indian Ocean, and enter India or other South-East Asian ports.
It would trade at those ports, and then come back to Europe.
As the ships appeared on the horizon, they would be spotted by men sitting by the sea holding telescopes.
As soon as a ship was visible, the telescope man would dart for the stock exchange. This man would be an informant.
He would give this newly acquired knowledge to whoever had hired him — someone trading stocks.
The trader would then buy large quantities of the stock before the rest of the market got wind of the news.
Some time later, as the ship entered the ports, the newly traded goods were offloaded and sold, money was made.
The new profits would cause the share price of the company to climb.
The trader who hired the man with a telescope would have bought the company’s stocks much before they went up.
So he would be sitting on fat profits made over a very short period of time.
Further Up Stream
Traders tried to get info about ships before they reached the ports.
The game was practically never ending.
These cargo ships were heavy and moved slowly. Other ships moving along the same routes were usually much faster.
Some traders would try to talk to the sailors on these ships to learn more about the cargo ships.
How was the weather? What was the economic situation in the port they had gone to trade at? Was the cargo ship loaded or did it look empty?
Whoever got wind of the information first could potentially make a killing over a short period.
The more innovative and rich traders would hire informants in different ports and have them write letters back to the traders.
Letters were often put on faster ships or light ships, resulting in the information arriving before the cargo ships did.
There were some coffee houses in cities like London and Amsterdam that were famous as meeting places for traders, sailors, and other informants.
Often, news picked up here could give a significant advantage to traders.
The cycle doesn’t end here.
There was always someone who wanted to move further up the stream.
Some tried to use letters carried over land routes to beat the mail-carrying ships.
Some used men on horse-back to cross the countryside from the nearest point any information could be picked up.
How?
Many times, the ships would reach European waters a few days before reaching the port since the port would be a little way further in.
A man on horseback would travel from this point to the stock exchange (horses were much faster than ships).
Things Have Changed: Efficiency
This race for speed has not changed even today. The best traders are desperately trying to get information faster than ever before.
What has changed is the duration.
Information travelled over days, weeks, and even months. Now, it happens in microseconds. Seconds at worst.
This has made the markets a lot more ‘efficient’.
What this means is, new developments get factored in and affect stock prices much faster than before.
The faster the information travels and affects share prices, the less time traders have to react to place their trades. Further, they have less time to process the news and decide how good/bad/neutral it is.
At the same time, information availability has improved massively. Which means that while earlier only a few people had information. Now, almost everyone has it.
So, more traders have the information about an event almost as soon as it happens.
This is one of the biggest reasons for trading being so difficult.
Only the traders who are the fastest to react are able to make a quick buck. The fastest to react are the ones using algorithms and a very fast network of computers.
At the same time, the same factors — information availability and speed — have made it much easier for another type of investor: long term investors.
Quick Takes
+NSE changes pre-open session rules, including new time windows for market and limit orders, separate period of order matching and opening price determination came into effect on 7 September.
+SEBI’s revised framework for ETF trading came into effect on 7 September. The framework revised base price norms, introduced dynamic price bands based on underlying assets, among others.
+The government approved Strategic Investment Plans (SIPs) worth Rs 735.70 crore for ITI clusters in Rajasthan, Uttar Pradesh, and Telangana.
+SEBI removed the regulatory requirement for FPIs investing in government securities to provide investor group details. This follows a recent RBI circular that removed concentration limit requirements.
+Alternative fuel vehicle sales overtook petrol sales in August, as per FADA. The combined retail sales of alternative fuels for passenger vehicles, including CNG, hybrids and EVs rose to 41.95% against petrol’s 40.85%.
+The government approved 3 multitracking projects worth Rs 10,783 crore across 14 districts in West Bengal, Jharkhand, Odisha, Madhya Pradesh and Chhattisgarh.
+The government approved 5 multitracking projects worth Rs 10,021 crore in 17 districts across Tamil Nadu, Andhra Pradesh, Karnataka and Telangana.
+Equity mutual fund inflows rose 18.75% to Rs 29,328.62 crore in August. Debt funds saw an outflow of Rs 8,127 crore in August vs an inflow of Rs 1.87 lakh crore in July.
+India’s forex reserves rose $44.90 billion to a record high of $785.70 billion for the week ended 4 September.
+The government notified that the Banker’s Books Evidence Act, which modernises the legal framework for the use of banking records as evidence, will be effective from 1 October.
The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.
Team Groww Digest