The History of Forex Currency Trading
The Forex online market was created in 1971, although it was only possible through a combination of technical, communicative and political progress. To understand and how they trade in foreign exchange is a crucial element in a successful, intelligent, Traders. It is important to know that it should be a major event with one of these factors, so currencies are concerned – to be on each side of the profit line. The goal of every trader should, in order to understand the market to know what all the statistics mean and how can one important messages countries currency swings, by strengthening or diluting its value.
The idea of a foreign currency is imported from the Middle Ages, when the first paper money was, and represents a transferable payments for merchants and traders – such as an IOU, a promissory note. National governments, provinces and municipalities began to store gold, silver and other items of value, and bonds issued against a specified value. The problem was, that could change on a given day the value only to the decisions of kings and governors.
By the end of World War I (WWI), the Forex markets have remained relatively inactive and stable. But after the First World War, the strong volatility of the foreign exchange market increased, and investors speculated. From the mid-1870s until shortly after the First World War, the international monetary systems ran out of the principles of the gold exchange model. As a result of hard by the value of gold, paper money, supports currencies, as it was called, witnessed a healthy life for this gold standard. (The term often used to describe a value of currency in direct proportion to the price of a fixed weight of gold). The gold standard helped end the practice of the monarchs and dictators money indiscriminately degrading, and that was set is an important cause of inflation.
But how much of a step-up to the stability of the currency, as it was, the gold standard has many problems such as the Industrial Revolution had progressed. The main problem was the model that the continuous redistribution of wealth would see within the countries of the world. The peaks and valleys of these countries had many experienced due, in large part to the economic instability caused by a lack of gold reserves and a depreciation of the other raw materials.
Recession was not kind to many of the early speculators who some believe that due to these high speculations and assumptions, which ultimately brought about the Great Depression. And as a result of what began a very difficult time teaching the people the necessary progress. Policy makers and politicians realized finance the weight of the world in foreign exchange markets and in 1931 began a period of redefinition of the Forex and monetary policy
Bretton Woods Agreement
The Bretton Woods Agreement, was designed to bring stability to bring the money system and to limit speculation in the world currencies.
As an economy strengthened, imports would increase. This action depleted he reserves of gold required to cover the valuation of its money. This caused the money supply to constrict, interest rates would rise and economic activity could slow to the extent of recession – (a period defined by 3 straight fiscal quarters of gross domestic product losses – in which unemployment and low consumer spending are high). Eventually, the prices of goods had to define a bottom and become palatable to other countries. These countries would start buying the currency en masse, injecting the economy with significant amounts of gold, enough to lead to an increase in the money supply. This drove interest rates down and helped to create wealth within the economy.
This was a pattern that was relived over and again through history until the outbreak of World War I practically closed trading routes and the free exchange of gold and silver. This of course was followed by ‘The Great Depression’, which quite arguably was ended by World War II.
After the Second World War, the Bretton Woods Agreement was established., Participating countries agreed to try and maintain the value of their currency with a small margin against the US dollar, economically, the largest country, and a corresponding rate of gold. Governments were not allowed, under the agreement, to devalue their currency in order to bring on an advantage in trade. If absolutely necessary, they were allowed to play with their valuations as long as it did not cause more than a 10% change. Throughout the 1950s, the increase in global trade brought on massive capital transfers created by post-WWII construction. This caused foreign exchange rates under the Bretton Woods agreement to become unstable.
By 1971, the global situation had inevitably caused a move away from Bretton Woods. US President, Richard Nixon had taken the dollar off the gold standard in order to be able to print more money to fund the Vietnam War. This marked a change in government policy in which a debt/credit system was born. By 1973, the currencies of major industrialized nations became free floating, and in part became more subject to the prices set for them in the Forex market. Prices fluctuated each day, with trading volumes and price volatility increasing throughout the 1970s IT was these drastic changes that gave rise to new financial instruments, market liberalization and deregulation.
With the growth in the telecommunication and computer industries in the early 1980’s, the global financial markets surged and the world grew smaller. All markets became accessible to everyone, no matter what time zone, no matter what time of day.
Transactions in the Forex market increased from about $68 billion per day in the early 1980s, to over $3 trillion a day in 2006.
The Forex Marketing Today
There are many factors that the current structure of the Forex market have been conducted ..
Since the early 1970s the Forex market has grown in size, structure, and changed the way it operates. These transformation resulted from changes in the global financial systems. A primary cause of the increase in foreign exchange trading was the rapid development of the Euro-Dollar market, where US dollars are deposited into central and local banks outside of the United States. Similarly, it is typical for countries within the European markets to have their assets deposited outside the currency of origin.
To contrast this concept, during the start of the Cold War in the mid 1950s, all the money made by Russia from the sale of oil (which came in the form of US Dollars) was deposited in banks that were outside of the US for fear that the US Government would freeze the funds. This helped bring about a large amount of dollars that were not in the control of the US authorities.
The US government tired to impose laws restricting the loaning of dollars internationally. The Euro markets were particularly attractive because they had far fewer regulations and offered a much higher yield. Towards the end of the 1980’s, US companies began borrowing offshore and this is the norm today. Investors and savers find the Euro markets a lucrative and safe area to put their excess liquidity. In turn, these deposits provide short-term loans and finances import and export activities.
London was the principal offshore market, as it remains even now. In the 1980s, it became the key center in the Eurodollar market when British banks began lending dollars as an alternative to pounds. This allowed them to maintain their leading position in global finance. London’s convenient geographical location allows it to operate during Asian, Pacific and American market hours as well.
As Forex trading has grown, several international cities have emerged as market leaders. Currently, London, England has the greatest share of transactions with over 32% of the total trade volume. Other leading trading centers listed in order of volume are New York, Tokyo, Zurich, Frankfurt, Hong Kong, Paris, and Sydney.
Currently, the Forex market has expanded from consisting of only banks to one where many other kinds of institutions participate. The evolution of the Forex – from a range of loosely connected national financial centers to a single integrated international market – brought about a system that offers means of trading to not only financial professionals but also individuals who began trading and investing, and one that also plays an important role in our economies – both individual and national.
Since the late 1970s the Forex has seen an influx of financial entities, such as banks, hedge funds, and broker trading houses, as well as individual traders enter the Forex arena. Today, instead of being controlled by national banks and governments, the main factor that drives today’s Forex markets is supply and demand. The free-floating system is ideal for today’s Forex markets as international trade and commerce are abundant in the 21st century. The tremendous growth and application of technology in the Forex market broke down all barriers between nations, as well as time zone barriers eventually resulting in a 24 hour market throughout the American, European, and Asian time zones. Through the popularization of the internet, the trading of Forex online has enabled the average investor to reach this vital and practical market.
