Since the birth of modern day investing around 400 years ago, the world has seen quite a development in their financial markets. From the establishment of the London Stock Exchange in 1698 to today’s multi-trillion dollar financial markets, today’s trading is unlike ever before with it’s personal trading platforms, retail traders, and thousands of brokers.
The current phenomena of trading currency in the Foreign Exchange Market has came to be from a number of past economic events. Let us take a look at some of these happenings. Having a solid understanding of the past can always give us an edge for the future.
1. The Gold Standard System (1875)
Being a critical event in the history of the Forex market, the gold standard system was implemented to back up countries’ currencies with gold. Prior to the gold standard, gold’s value was effected by external supply and demand. More gold meant less worth (because of supply and demand), this was an unstable way of valuing gold.
Around the beginning of World War 1 the gold standard collapsed as many countries needed more money to produce military equipment.
2. Bretton Woods System (1944)
Prior to World War 2 ending, allied nations thought they needed something to bring stability to the world currencies, something other than the gold standard.
The Bretton Woods System introduced multiple institutions such as The World Bank, GATT, and the IMF. The victorious countries of WWII wanted to prevent a future monetary crisis similar to the one that lead the world into WWII. Bringing order and security to the fiscal well being of the world, the Bretton Woods agreement reinforced the Gold Standard in part, fixing the United States Dollar to $35.00 per ounce of Gold. The agreement, once the USD was fixed to gold, fixed the other major world currencies of the world to the U.S. Dollar.
1971 introduced the new era of Forex Trading. In result of the United States banishing the Bretton Woods Agreement of 1944, the currency market now stood as a free-floating market. Exchange rates were then calculated by supply and demand.
Throughout the 70’s and 80’s, banks and large institutions could trade the Foreign Exchange market but the true Forex revolution came with the growth of the internet. The internet birthed modern retail trading, and banks established their personal trading platforms designed to stream live quotes to their clients!
Clients were now able to see live quotes and they could execute their own trades. Also, retail forex traders could now execute smaller trades. One reason many didn’t participate in Forex prior to the last 10 or 15 years is because in the Interbank market, the standard trade size was one million units.
As the 2000’s progressed, Forex interest consistently inclined as more and more people used personal trading platforms via the internet. When the 2008 crash came along, awareness of the Foreign Exchange Market peaked to phenomenal highs according to Google Trends. Since that time, Forex interest has consistently declined according to the same source, but awareness of the financial markets could once again increase as the world’s economies become more unstable.
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