The internet has turned the stock market into a dynamic, fast-paced world. Transferring money is a matter of milliseconds, market data is available around the clock, and with just a few taps any smartphone user can become an investor. But the stock market worked in an entirely different way long before online trading platforms and high-speed connections. From in-person trading floors to ticker tapes and online trading, the stock market has undergone a remarkable evolution over the past 150 years — and one of the most interesting examples of this evolution is the shift to negotiated markets and higher speed technology. The old, pre-Internet stock market was an interesting place. If you’ve ever wondered how the stock market work before the internet, this blog will give you answers.
This blog highlights aspects of how markets worked before the internet era, touches on some of that (and downloaded a bunch of cool archive data!) and can help us appreciate how far we’ve come.
In the end, you’ll have learned about the operation of a stock market in a bygone analog age, the obstacles traders and investors encountered, and how the seeds of today’s market were sown in that more hands-on time. Understanding how did the stock market work before the internet helps contextualize modern advancements.
The Fundamentals of the Pre-Internet Stock Market
The stock market used to be more or less be a physical and manual machine before the internet linked markets and brokers very nearly instantaneously. Here’s a quick look at what trading was like and how did the stock market work before the internet:
Stock Exchanges Existed in the Real World
Trading in stocks wasn’t on online platforms like today, but in physical stock exchanges like the New York Stock Exchange (NYSE). Traders would stand elbow-to-elbow on chaotic trading floors, yelling and gesticulating to get brokers’ attention and place trades. These hustling floors were marked by noise, fast action and paper.
These exchanges in major money centers like New York, London, and Tokyo were where trading took place. Investors who lived outside those cities trusted intermediaries (stockbrokers and financial advisers), not participation in the offerings.
Quote Sharing was Done Off Ticker Tapes
Without the internet or electronic readouts, ticker tapes were the fastest way to receive updated stock prices. A ticker tape was a long strip of paper printed with abbreviated company names, stock prices, and volume, updated in real time (or something approaching real time, given the mechanical constraints of recording and printing).
Investors with no access to live trading relied on the ONX updates to monitor the market.
Messages Were Slow and Required Human Intermediaries
Each trade required a human. To buy or sell shares, investors had to call up their stockbroker or visit him in person. The broker would then pass the order onto the floor traders where the order would be executed manually on the floor of the exchange. This could be a process lasting minutes, even hours, compared with the instantaneous transactions we have today.
How the Stock Information Spread
As lightning-fast as today’s data stream is, access to stock information was tightly restricted and rather slow. Here’s what investors were reading:
It Was the Newspapers First
Daily newspapers were the primary vehicle for stock market news for many. Newspapers published stock tables with the previous day’s closing prices, effectively a delayed, static snapshot of the market, to investors. If you wanted real-time information, you had to rely on ticker tapes or what the broker knew. This highlights how did the stock market work before the internet in terms of information access.
Radio and Television Updates
By the middle of the 20th century, radio and television shows started running hourly or daily stock market summaries, and the broadcasts gave people slightly fresher information than the newspapers. TV shows like NBC’s “Nightly Business Report” became a hit among early casual investors.
Even then, the amount of information was nothing like what today’s retail investors get through their smartphones and investment apps.
Stockbrokers as Information Intermediaries
Stockbrokers became the link between the investor and the market— a necessary go-between. It was not only in the placing of trades, it was also in the bits of market data and information they passed on to their clients. The best brokers built trust with their clients, who didn’t have access to much information otherwise. This was central to how did the stock market work before the internet.
How Trades Were Executed and Settled
The buying or selling of shares pre-Internet used to be a multi-step, human- and paper-reliant process, and a lesson in patience:
Placing an Order
An investor would then call their broker or meet them in person to place trades. They would identify the stock, the kind of trade (buy or sell) and any price conditions.
Do you mean trading floor processing?
The broker would transmit the order to their firm’s floor trader at the exchange. This professional would step into the trading pit, where trading was done by open outcry. In essence, traders would shout offers and prices to each other in order to hammer out a deal.
Trade Confirmation
If a trade was executed, it was verified with the broker, and then with the client. Obtaining the confirmation they sought could take several hours, or an entire day or more, for an investor.
Settlement
Buyers and sellers had to wait days (a practice known as T+5, for trade date plus five business days, was not uncommon) for both securities and cash to change hands after a trade was made. There was no automation between any settlements and you just had piles of paper.
Pre-Internet Stock Market Difficulties
As dramatic, exciting and get-rich-quick rushy as trading was though, in a pre-internet world it was anything but efficient. Here are some of the issues investors and brokers encountered that explain how did the stock market work before the internet:
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Restricted Access for Retail Allotment
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Lack of Real-Time Data
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High Costs
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Human Errors
What the Analog-Era Theorists Gave Us, and How They Proved Us Wrong
Stalling, inefficient as it was, offered a staging ground for the ultra-efficiency of the modern market. Here are a few key legacies:
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Stock or Exchange as a Hub
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Importance of Stockbrokers
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The Human Element
Why We Should Know History
Knowing how did the stock market work before the internet helps us recognize the amazing innovations that modern trading systems offer and the ease with which anyone can access them. What used to take trusted middlemen and large amounts of capital can now be done on your own with a smartphone and a brokerage app.
But it also suggests that finance has always been a human-powered project — even in this age of high-frequency trading and machine learning.
If you’re an investor, or just someone who’s interested in what “The Street” does, it can help to look back at the history of the stock market. The shifts we’ve witnessed over decades also suggest a window to the innovations still to come. Understanding how did the stock market work before the internet is more relevant than ever as markets evolve further.
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