Today the forex market is one of the most liquid & most accessible largest markets, but the history of forex trading is centuries old. It is thought that this trading started during the Babylonian period.
If you are a potential forex trader, you need to know the right history of currency exchange and the fundamental historical events that have shaped the largest market as history repeats itself, so who knows whether the same events will happen again or not!
History of Forex Trading : where it all began
The barter trade system allows exchanging one good against another. Mesopotamian tribes started this barter trade system in 6000 BC. Then food items were popular mediums of exchange.
After that, in the late 6th century BC, gold coins were evolved. These gold coins became super popular as the medium of exchange as it was durable, handy, uniform and the supply was also limited. So gold coins became the main currency.
Then the governments of different countries guaranteed that they would restore any amount of paper money for its value measured in gold. This method worked until the first world war. During the first world war, European countries needed to print more money to pay for the war, so they hang down this gold standard.
Later at the end of world war ||The whole world became chaotic, and leading countries’ governments needed to constitute a more stable global economy.
Here comes the Bretton woods system. This Bretton woods system guarantees the agreement to set the exchange rate of the US dollar against gold. This agreement allows all other countries to fix the rate against the US dollar.
Later, for many limitations, this Bretton Woods system became obsolete. For that very reason in early 1971, the Bretton Woods agreement was nullified. Then the US government, along with some other leading western countries, evolved the currency market where rates will be fixed not by gold but by supply and demand theory.
Seemingly it was a difficult task, but thanks to modern technology, which made the path easier.
In the 1990s internet became more accessible, tech giants developed personal computers more user-friendly, and artificial intelligence evolved massively. As a result, many banks started to design their very own currency trading platforms. With the help of these platforms, clients could instantly execute their trades by themselves.
Forex brokers
Many retail brokers and banks introduced internet-based trading platforms for speculators and investors. With the help of these retail brokers, we, the speculators, were allowed to trade as small as 1000 units trade.
There are 2 types of forex brokers.
Market makers
These types of foreign currencies’ brokers set their bids and ask prices themselves, and we, the speculators, don’t like these types of retail forex brokers. Many experienced forex traders address that beginners lose their capital, most of the case for these market makers.
Electronic Communications Network ( ECN brokers)
ECN brokers offer low commission and low spreads. These types of brokers use the best bid and ask prices available to them which they get from various interbank markets. The combination of tight spreads normally makes trading costs cheaper.
Major currencies of forex market
Swiss Franc, Canadian Dollars, British pounds, Australian Dollars, US dollars are the most volatile and most traded currency in this market today. Although there are 128 currency pairs only a few are most traded. I am giving a list of top traded currencies in the forex market
- EUR/USD
- GBP/USD
- GBP/CAD
- USD/CAD
- GBP/AUD
- GBP/NZD
- GBP/JPY
- EUR/JPY
- EUR/AUD
- EUR/CAD
- EUR/NZD
The bottom line
Today more than 7 trillion dollars is traded every single day in the forex market. Yet, despite this huge transaction, the forex market is uncertain and ever-changing. These bizarre characteristics of the financial market ways the opportunities for currency traders. That’s why we should know the History of Forex Trading!
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