The History of Forex Trading

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People have been exchanging currencies since the dawn of international trade. Today, foreign exchange is the largest financial market worldwide. Its daily turnover is estimated to exceed 6 trillion American dollars. Over the centuries, the notion of currency trading evolved from the use of coins and banknotes to money-making through smartphone apps. Here is an overview of forex history.

Accessible Currency Trading 

What we now know as Forex did not exist until the 1990s. Today, any individual may register an account and connect to this colossal financial exchange through the internet. Previously, this was possible only for large institutional players like hedge funds, commercial banks, or corporations.

Today, it is a gigantic decentralized system where immense volumes of currencies circulate every minute. This market rarely sleeps. Forex trading takes place 24 hours a day five full days a week. All operations are performed online.

Buyers and sellers connect to each other freely. This is why the market is classified as over-the-counter (OTC). Unlike the stock exchange, it does not have a single physical centre.

Emergence of Currencies

Barter was the oldest method of exchange, which appeared around 6000 BC. Invented by the tribes of Mesopotamia, it allowed an exchange of goods for other goods. With time, spices and salt became accepted means of exchange.

By the 6th century, the first gold coins had appeared. They quickly became widely accepted as they existed in limited supply and were durable, portable, and uniform. However, their weight was an important drawback, so banknotes were invented.

Floating Exchange Rates

Today, most currencies have a floating exchange rate. This means their value against other currencies is always changing. Clients of global brokers like ForexTime have access to dozens of currency pairs, as well as stock trading. Without a floating rate, forex trading would not exist. However, it wasn’t until the 1970s the currencies began free float.

Gold Standard

Throughout the nineteenth century and until the first World War, currencies were linked to gold. The gold standard meant that governments were obliged to redeem paper money for its value in the yellow metal. When the war broke out, world leaders understood that they needed to abolish the standard, so they could print more money to cover their military expenses. The gold standard was suspended.

However, it was not until the Second World War that major changes took place. In 1944, representatives of 44 countries gathered in the Mount Washington hotel for a conference which led to what is now known as the Bretton Woods system.

The intention was to create a stable environment which would allow member economies to restore themselves. Thus, an adjustable pegged foreign exchange market emerged. Currencies could now be fixed to the American dollar, which in turn was pegged to gold, as the country possessed the largest gold reserves at the time. Other states would now conduct transactions in dollars, so the USD became the global reserve currency.

However, the system only lasted until 1971. The US government was expanding and lending dollars too actively. Soon, there was not enough gold to back the amount of currency in circulation.

The Beginning of Free Floating

Eventually, the Nixon Administration abolished the Bretton Woods system, which caused the US dollar to float against other foreign currencies. The new system called The Smithsonian agreement established that other majors could fluctuate by 2.25% against the USD, and the latter was pegged to gold.

By the 1980s, the USD had grown excessively against other currencies. This hurt exporters, but the government preferred a strong US dollar to global competitiveness. However, indebted nations were struggling, and American factories were being closed. Eventually, representatives of G-5 gathered in the Plaza Hotel in New York. It led to an appreciation of non-dollar currencies.

This was when traders realized the potential of fluctuations. By the beginning of the next decade, the currency market was growing rapidly. The rise of online technologies allowed traders to access quotes at the click of a button.

Forex Trading in 2021

Now, the global financial market is at our fingertips. In Thailand, FX trading is increasingly popular. Through platforms and apps, users can monetize their knowledge of currency trends. Education and software are free, while regulated brokers provide comprehensive guidance and quick withdrawal of profits.