History of the Forex Market



History of the Forex Market

The foreign exchange market has existed as long as currencies have. In 1875 the birth of the gold standard monetary came, with it came currencies. Prior to 1875, countries primarily used gold and silver as a form of international payment. Payment using gold and silver were hampered by their depreciation according to external factors such as an increase in the discovery of new deposits, which would lead to a change in supply and demand. This factor would change the Forex trading history forever. The aim was to standardize the amount of gold that was allotted to a currency. Currency was now backed by gold, measured in ounces. Countries needed large gold reserves to back the demand for currency. The price difference of an ounce of gold between two different currencies now became the foreign exchange rate for those two currencies. This History of Forex was changed by the birth of an international standard by which foreign exchange could take place between countries.

The gold standard monetary broke down during the start of the First World War political turmoil with Germany forced the larger European powers to focus on military projects. This financial drain on Europe gave way to a lack of gold to back the excess printing of currency and changed the course of FX history. The abolishment of the gold standard monetary system left a mess of the method of foreign exchange. This matter was a concern to the Allied countries so they held a convention in Bretton Woods, New Hampshire. This convention led to the inception of the Bretton Woods monetary system. The Bretton Woods monetary system allowed a new method of obtaining a fixed foreign exchange rate. It also let the gold standard be replaced with the US Dollar as the ultimate exchange currency. In this plan the US Dollar was supposed to be the only currency backed by gold. This didn‘t last long as the U.S announced the end of the Exchange of gold for US Dollars by foreign banks on 15 August 1971.

The forex market has made many advances from that day to what we now have. The forex market is now almost entirely virtual, but it still determines the exchange rate between nations. The forex market is based entirely on currencies, which have a tendency to fluctuate wildly. This makes the forex market unpredictable and the most risky. However, the benefits of trading in the forex market are the potential for large profits. It is easy to gain a fortune in the forex market if you know what you‘re doing. It is also just as easy to lose everything you have invested in the market. It is not recommended that someone have more money than they can afford to lose invested in the forex market at one time.