The History of Forex Trading
One of the modern world's most popular trading mediums is Forex. However, it has a very long and chequered history, which dates back some 4000 years.
Understanding the history of Forex could prove to be relevant to traders because it is a series of historical events that have created the current market – and who knows when history may repeat itself!
The timeline detailing the development of foreign exchange trading is a genuinely fascinating subject and is indeed worthy of some in-depth investigation when you have a few hours to spare.
In this guide, you will learn:
- How Forex (FX) trading first began
- When Forex trading became popular
- What is the future of retail Forex
How Did Forex Begin
Foreign exchange dates back to the time of the Babylonians, around 2000 BC, when trades of gold for other products were first recorded. This type of barter system using "loose" gold was used all over the world until around 600BC when the first gold coin was minted.
For many years to follow, international transactions were completed using either gold or silver. However, the main problem arising with that was price fluctuation in those commodities brought about by global demand and supply.
This means that one of the most notable events in the history of Forex was the development of the gold standard system, which took place in 1875. In a nutshell, the system allowed governments to fix a certain amount of currency to one ounce of gold, so foreign currency exchange took place by the price of an ounce of gold at that time.
The gold standard fell apart during World War I, and although it’s brief use between then and the end of World War II, it was replaced by the Bretton Woods system which aimed to use the USD to fix exchange rates instead of gold.
This system stayed in place until 1971 when President Nixon boycotted it due to issues within the US Treasury which amounted to insufficient gold available to back the number of printed dollars in circulation.
Foreign exchange dates back to the time of the Babylonians, around 2000 BC.
When Forex Became Popular
The development of Forex was affected in the short term by some events, regulations and agreements, namely:
As you will have seen, foreign currency exchange has always been commonplace, but early in the 1990s, it moved on to become something in which retail traders could be involved.
With the availability of the Internet, along came a whole new way of trading and the first Forex brokers accessible to retail traders went online in 1996. Most of the options available at that time would have been confined to around ten classic and economically stable currencies. As the Internet started to become more widely available to the masses, options rapidly increased alongside.
The Story Today With Forex
From small beginnings and slow online connections, you will have witnessed many changes to online Forex trading over the past 20 years. Today, it is one of the busiest markets in the world, with around $5 trillion traded daily.
It is known colloquially as "the market that never sleeps" because Forex trading is available 24 hours per day, 5 days per week. From Monday to Friday, global market activity is covered by three major sessions: Asian (Tokyo), London (European) and New York (US).
No matter what your location or time zone, you can trade Forex at any time, day or night.
There are no specific opening and closing times for the sessions and the overlap period is dependent on how busy the session has been. Many traders particularly enjoy these session "crossover" periods and trading during those times is particularly fast and can be extremely volatile.
In terms of what you can trade, there are currently 180 global currencies included in the currency pairs available to Forex traders. However, the majority of trading platforms usually only offer around 50 consistently traded pairs.
Forex Trading in The Future
Not only has Internet technology improved vastly, with faster and more reliable connections, but Forex itself is looking more like a sophisticated gaming program than a tool for trading currencies.
For those who enjoy it, there are numerous ways to analyse and watch Forex trends in real time, but on almost the opposite end of the scale, significant increases in the growth of "social trading" are anticipated.
This form of open trading means that new traders can become involved with only minimal knowledge of the Forex market by copying successful participants and is almost sure to become extremely popular with the younger generation.
There is also still talk of "consolidation" within the Forex industry which, as and when it happens, will provide much more stability and indeed respectability to Forex trading.
Robert has consulted for our website for five years and is a well-established member of the team. While he is passionate about the site, most of Robert’s time is focused on his current position as CEO of a professional coaching company.