History Of Currency Trading

The Forex on

line m

arket was established in 1971, though it was only

pos

sible through a combin

ation of technologica

l, communicational and political advances. Understan

di

ng them and how the

y impact the trading of foreign c

urrencies is a cruci

al element in becoming a successful, smart, t

rader. It is important to

know that should there be a major event with any

of these factors, currencies will

be affected - on eithe

r side of the profit line. The goal

of every trader should

be to understand the market,

to know what all the stat

istics mean and how major news can swing a countries curre

ncy by making it stronger or diluting its value.

Each day around the w

orld, massive sums of currency are exchanged, seemingl

y with nothing more tha

n a click of a computer

mouse o

r a brief satellite-connected telephone conversatio

n between traders on different continents. Technolog

y

has helped to evolve t

h

e foreign exchange industry a long way from its rather

humble beginnings. Developing an appreciation for how this system developed ove

r

time – as well as an

understanding of the

modern analytical tools at a trader’s disposal – can

greatly a

id in investment decision-making.

The creation of the Gold Standard Monetary S

ystem in 1875 marks t

he most essential events in the history of the currenc

y trading. Before the gold standard, countries commonly use gold and silver as

means of international payment. Gold stand

ard was the fixed trading value. A certain weight of gold was the reference point of valu

e for foreign currencies.

The basic idea behind

the gold standard was that governments guaranteed the conversion of currency into a specific amount of g

old, and vice versa. This means that a currency woul

d be backed by gold. In the late 19th century, all of the major economic countries

had defined an amount of currency to an ounce

of gold.

Over time, the difference in price of an ounce of

gold between two currencies became the exchan

ge rate for those two currencies. This repr

esented the first standardized means of currency exchange in history of forex trading. But during the World Wa

r I, the gold standard eventually broke down.

History of currency tr

ading reveals that in the year 1944, the Bretton Woods Agreement found its

way into the forex tra

ding history. One of the important features of Bretton Woods is that the U.S. dollar replaced gold as the m

ain standard of convertibility for the world’s currencies. Moreover, the US d

ollar then became t

he new standard of the financial market. This international financial framewor

k leads the dollar to becoming the new global reserv

e currency.

This new settlement started the tracking and monito

ring of currencies as well as the International Monet

ary Fund (IMF), and launched the World Bank. It aimed at setting up the inter

national monetary stability by means of preventing monies from taking flight a

cross nations, along with constraining speculation in the world currencies.

In 1971, when floati

ng exchange rates b

egan to materialize and the Bretton woods agreement was abandoned, the modern foreign currency exchange

market was born. Since then, prices were floated e

veryday along with volumes, speed and price volatility. With advancing technolo

gy, cross-border capital movement picked u

p its pace.

The remarkable for

ex trading history depicts how this extended the m

arket range all the way through Asian, European and American time zones. Currenc

y trading rose drama

tically from $70 billion a day in the 1980s and $1.5 trillion daily only 20 years later.

FOREX TRADING HISTORY In 1967, a Chicago bank refused a college professor by the name of Milton Friedman a loan in pound sterling because he had intended to use the funds to short the British currency. Friedman, he had perceived sterling to be priced too high against the dollar, wanted to sell the currency, then later buy it back to repay the bank after the currency declined, thus pocketing a quick profit.

The bank's refusal to grant the loan was due to the Bretton Woods Agreement, established twenty years earlier, which fixed national currencies against the dollar, and set the dollar at a rate of $35 per ounce of gold. The Bretton Woods Agreement, set up in 1944, aimed at installing international monetary stability by preventing money from fleeing across nations, and restricting speculation in the world currencies Prior to the Agreement, the gold exchange standard--prevailing between 1876 and World War I--dominated the international economic system.

Under the gold. exchange, currencies gained a new phase of stability as they were backed by the price of gold. It abolished the age-old practice used by kings and rulers of arbitrarily debasing money and triggering inflation. But the gold exchange standard didn't lack faults. As an economy strengthened, it would import heavily from abroad until it ran down its gold reserves required to back its money. As a result, money supply would shrink, interest rates rose and economic activity slowed to the extent of recession.

Ultimately, prices of goods had hit bottom, appearing attractive to other nations, which would rush into buying sprees that injected the economy with gold until it increased its money supply, and drive down interest rates and recreate wealth into the economy. Such boom-bust patterns prevailed throughout the gold standard until the outbreak of World War I interrupted trade flows and the free movement of gold. After the Wars, the Bretton Woods Agreement was founded, where participating countries agreed to try and maintain the value of their currency with a narrow margin against the dollar and a corresponding rate of gold as needed.

Countries were prohibited from devaluing their currencies to their trade advantage and were only allowed to do so for devaluations of less than 10%. Into the 1950s, the ever-expanding volume of international trade led to massive movements of capital generated by post-war construction. That destabilized foreign exchange rates as set up in Bretton Woods. The Agreement was finally abandoned in 1971, and the US dollar would no longer be convertible into gold. By 1973, currencies of major industrialized nations became more freely floating, controlled mainly by the forces of supply and demand which acted in the foreign exchange market.

Forex trading can be tracked down to ancient times. Trading of coins from different countries was done regularly by mere merchants. The first coins came from ancient Egypt and paper notes followed in the regulation by the Babylonians. Up until the middle ages, forex and trading continued on through the international banks. This basically paved the way for growth for the European powers and also generated the spread of foreign currencies all throughout Europe and across the Middle East. Forex trading is actually the longest of all the other markets’ histories.

In 1816, the Gold Standard put their mark in forex history and changed it forever. This standard was the fixed trading value. A certain weight of gold was the reference point of value for foreign currencies. During that year, the British pound was defined as 123.27 grains of gold. The British banks defined the exact assessment of the value which aided in setting the UK standard currency as stable. In 1879, the US employed the same gold standard and thus replacing the British pound.

The Bretton Woods Agreement found its way into forex history in 1944. After World War II, the economic status of the biggest nations of the world changed dramatically. To name a few, the UK suffered insurmountable financial blow. While the US remained unharmed and their financial state stable even after the war. The US dollar then became the new standard of the financial market. This international financial framework leads the dollar to becoming the new global reserve currency. This new settlement started the tracking and monitoring of currencies as well as the International Monetary Fund (IMF), and launched the World Bank. This aimed at setting up the international monetary stability by means of preventing monies from taking flight across nations, along with constraining speculation in the world currencies.

The Forex market as we know it today was actually established in 1971. The making of the market was to accommodate the floating exchange rates as they gradually materialized. By the year 1972, major countries had economical difficulties and generated the floating of their currencies. Another agreement was signed—the Smithsonian. This accord now meant having a more flexible movement for the currencies, thus allowing the currencies to vary and fluctuate further. With this agreement, the European market tried to detach them from the dependency on the US dollar. This was possible with the agreements of the currencies’ unlimited variety and flexibility. This gave way to the free-floating currency system. This free-floating system was officially mandated in 1978. Since then, prices were floated everyday along with volumes, speed and price volatility. This was the reason behind new financial instruments, market deregulation and trade liberalization.

With advancing technology and computers, cross-border capital movement picked up its pace. This extended the market range all the way through Asian, European and American time zones. Forex trading rose dramatically from $70 billion a day in the 1980s and $1.5 trillion daily only 20 years later, and the rest is forex history.

Prices were floated daily, with volumes, speed and price volatility all increasing throughout the 1970s, giving rise to new financial instruments, market deregulation and trade liberalization. In the 1980s, cross-border capital movements accelerated with the advent of computers and technology, extending market continuum through Asian, European and American time zones. Transactions in foreign exchange rocketed from about $70 billion a day in the 1980s, to more than $1.5 trillion a day two decades later. The Euromarket A major catalyst to the acceleration of foreign exchange trading was the rapid development of the euro-dollar market; where US dollars are deposited in banks outside the US.

Similarly, Euromarkets are those where assets are deposited outside the currency of origin. The Eurodollar market first came into being in the 1950s when Russia's oil revenue-- all in dollars -- was deposited outside the US in fear of being frozen by US regulators. That gave rise to a vast offshore pool of dollars outside the control of US authorities. The US government imposed laws to restrict dollar lending to foreigners. Euromarkets were particularly attractive because they had far less regulations and offered higher yields.

From the late 1980s onwards, US companies began to borrow offshore, finding Euromarkets a beneficial center for holding excess liquidity, providing short-term loans and financing imports and exports. London was, and remains the principal offshore market. In the 1980s, it became the key center in the Eurodollar market when British banks began lending dollars as an alternative to pounds in order to maintain their leading position in global finance. London's convenient geographical location (operating during Asian and American markets) is also instrumental in preserving its dominance in the Euromarket.