The History of Forex Trading: All You Need to Know

The History of Forex Trading: All You Need to Know

The Foreign Exchange Market (Forex Market) is a worldwide, decentralized marketplace where foreign currencies are traded in the same way as other assets.

The market operates 24 hours a day, five days a week, because of its worldwide and decentralized nature.

With a daily trading volume of approx $5 trillion, Forex is the world’s largest and most liquid market. The market has been shaped by past major global events such as the gold standard.

Before 1970, Forex trading was mostly carried out by huge international corporations that necessitated the use of many currencies.

However, there has been a rise in currency trading after the period, driven by both operational and speculative factors.

History of Forex Trading:

It all started with the Mesopotamia tribes introducing Forex trading in around 6000 BC with a barter system.

Under this system, one tribe exchanges products for things that another tribe needs to receive the goods they require.

After then, the system expanded, and commodities became common means of exchange. Later, ships were sailed to barter for these products as the earliest known form of International exchange.

The first gold coins were introduced in the early 6th century BC. They served as a means of money because they possessed important features such as mobility, durability, divisibility, uniformity, limited supply, and acceptance.

Gold coins were generally recognized as a means of commerce, but their weight made them unworkable. As a result, most countries adopted the gold standard in the 1800s.

The gold standard ensured that any quantity of paper money would be redeemed for its gold worth by the government.

This worked great until World War I when European countries were forced to abandon the gold standard in order to generate more money to fund the war.

In the early 1900s, the Forex market stepped in. Countries traded with one another because they could exchange their currency for gold.

On the other hand, the gold standard could not withstand the two world wars.

What are some historical events that shaped the Forex market?

Here are some major historical events that aided and accelerated the development of the Forex market.

Gold Standard:

Gold has been used as a medium of exchange since ancient times. The gold standard was utilized as the worldwide currency and was widely used in international trade until the twentieth century.

The gold standard was introduced so that governments all over the world could ensure that the value of money conversion into gold remained constant.

This effectively meant that a specific amount of gold-backed each unit of money.

The Bretton Woods System (1944–1971):

The foreign exchange market saw its first major transformation when the Bretton Woods System or Accord was introduced in 1944.

At the United Nations Monetary and Financial Conference in Bretton Woods, the United States, the United Kingdom, and France promised to build a new global economic system.

Because the United States was the only country not touched by the conflict, its position was crucial. As a result of the war, most of Europe’s major countries were in shambles.

Following the 1929 stock market crisis, WWII elevated the US dollar from a failing currency to a benchmark currency against other world currencies.

Free-Floating System:

After the Bretton Woods Accord came to an end, the Smithsonian Agreement was enacted as a comparable resolution that provided for a wider currency fluctuation band.

The US dollar was fixed with the value of gold at $38 per ounce, causing the USD to decline. Other major currencies varied by 2.25 percent versus the US Dollar under this agreement.

But the USD remains fixed to gold. In 1972, the European community attempted to wean itself off the dollar.

Later, West Germany, France, Italy, the Netherlands, Belgium, and Luxembourg formed the European Joint Float.

The Plaza Accord:

After the free-floating system, the US Dollar had risen greatly versus all other major currencies throughout the world in the early 1980s.

However, this made things difficult for exporters, resulting in a 3.5 percent GDP deficit in the US account. In addition, the weight of the US Dollar was crushing third-world nations, especially those in debt.

This resulted in the closure of numerous American firms due to a lack of competition from foreign competitors.

The G-5 — the world’s most powerful economies, including the United States, the United Kingdom, France, West Germany, and Japan — had a secret conference at the Plaza Hotel in New York City in 1985.

After that, the system was recognized as the “Plaza Accord,” and retail traders began to see the potential for profit in the new world of currency trading.

Introduction of Euro:

Following WWII, Europe negotiated a number of accords to bring the region’s countries closer together.

The 1992 deal known as the “Maastricht Treaty,” which takes its name from the Dutch city where the meeting was held, was the most productive of all these accords.

The European Union (EU) was founded during this treaty, and it led to the development of the Euro currency.

It combined a coherent whole that encompassed various foreign policy and security measures. As a result, the treaty has been amended multiple times.

Present and Future of Forex Trading:

Talking about the present of Forex Trading, the traders can now buy or sell currencies online thanks to the entrance of the Internet into the trade.

The number of Forex market transactions has increased dramatically due to technological advancements.

Not only are transactions completed faster than ever before, but a larger number of people are able to participate in the market.

Several independent brokers have been able to establish Internet-based trading platforms thanks to advancements in web-related connections and technology during the last two decades.

Today, Forex brokers such as ABInvesting offer a great set of features and advanced trading platforms to help traders execute their trades more smoothly and efficiently.

Talking about the future of Forex trading, it is quite hard to predict and ever-changing, which led to limitless opportunities for Forex traders.

Conclusion:

Today, the Forex market is one of the world’s largest financial markets. The features of Forex trading make it very appealing to ordinary investors.

Due to ongoing global uncertainties and seemingly unstable monetary systems, digital cryptocurrencies such as Bitcoins have grown in popularity in recent years.

But that doesn’t mean the Forex market doesn’t offer any opportunities in the future. It’s still the world’s largest market and will continue to be the one in the near future.

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