What is Forex?

October 31, 2019 at 07:07 PM

Forex market is one of the biggest and most accessible markets in the world nowadays. Not everyone knows that it is considered to be centuries old. And yes, it is important to know the history of the forex trading to predict some events as we know that history tends to repeat itself. We are going to talk about several important events that have shaped the market created the forex market as we know it today. 

Beginning of the Forex Era

It all began in the 1800s with the creation of the gold standard. It meant that a government could redeem any amount of paper money for its value in gold. The gold standard was adopted in 1819 in England and 1934 in America. However, it was suspended in Europe during the world wars. 

During the period between 1899 and 1913 foreign exchange holdings have increased by almost 11 %, which marked the importance of the Forex market. 

By the end of 1913, only two foreign exchange brokers have operated in London when the most active trading cities were Paris, Berlin and New York. 

The famous Bretton Woods Accord was signed in July 1944, which fixed other currencies to the US Dollar and created an adjustable forex market. Although in 1971 the Bretton Woods system was ended due to the lack of gold to peg to the circulating US Dollars.

The failure of the Bretton Woods has resulted in the creation of the free-floating currency system, which meant the free-floating of the US Dollar to other foreign currencies. Unfortunately, this system wasn’t perfect and collapsed in 1973. 

Modern Forex Market

The 1973 year is considered to be the year when the modern Forex market began. Back then the state control of foreign exchange has ended and complete floating and relatively free market conditions began.

After the weight of the dollar crushed developing nations economies and got them in debt, the most powerful economies in the world met secretly at the Plaza Hotel in New York City in 1985. The plan was to encourage the appreciation of non-dollar currencies.

In 1992 the Maastricht Treaty was signed. This treaty has led to the establishment of the Euro currency and the EU establishment itself. With the creation of the Euro, all the exchange risks for European banks were removed.

The development of the Internet has opened a lot of opportunities for the traders and currency markets became faster and more sophisticated. Banks created their own trading platforms and retail brokers introduced internet-based trading platforms for individuals.

Also, the new markets such as those in Southeast Asia have emerged and started attracting capital and currency speculation.

Today Forex market handles over $5 trillion in trades daily and considered to be the biggest market in the world. It is the best time to be in the forex market as traders now have access to various trading platforms and technology that helps them make better trades.

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