The Foreign Currency Exchange (Forex) Market enables investors to make trades between major world currencies in order to make a profit. The Forex is the epitome of all traded markets since it is the least complicated and allows for trading 24 hours a day five days a week. It is hard to beat this combination when the goal is to develop a good system, stick to it and make a profit. The simplicity of the Forex Market as compared to the thousands of possible investments in other markets, combined with a persons ability to trade nonstop almost every day of the week, makes the Forex an ever increasing and desirable trading partner.
Pharaohs to the Middle Ages:
Foreign Exchange Markets have been alive and well since the Middle Ages. And even long before that, various currencies changed hands between regions and countries since money first originated during the time of the Pharaohs. It appears the Babylonians were the first to use paper bills and receipts which facilitated the exchange of currencies between third parties.
U.S. Centennial to World War I:
Between 1876 and World War I, Foreign Exchange Markets were very stable. This stability was created because everyone was on the Gold Exchange Standard. Currencies were now supported by gold prices! Unfortunately, the gold standard had one major problem. When countries would become prosperous, thus allowing their imports to increase, their gold reserves would run down. These were the same gold reserves used to support the countrys currency. One thing led to another and before long the country would go through a recession. Then its products would look attractive to other countries and the gold would start coming back in to fill the coffers. There was just too much boom and bust under the gold exchange standard. Something had to change.
Great Depression to Early 70s:
Shortly after World War I, in the 1930s, Foreign Exchange Markets became overly speculative, increasing volatility tenfold. Things were out of control and something had to eventually change. From the early 30s till the early 70s the Forex Market went through many changes, which can still be seen today. In fact it wasnt until 1973 that the modern Forex Market as we know it today started.
In 1944, after World War II was over, the major governments across the world came together in Bretton Woods, New Hampshire to agree on a way to move forward with Foreign Currency Exchange so each countrys economy could maintain and renew itself in an orderly fashion on a regular basis. The Bretton Woods Accord was established to mesh currencies and the International Monetary Fund (IMF) in order to stabilize the worlds economies. The accord fixed the major world currencies against the Dollar at a rate of USD 35 for each ounce of gold. The accord was also established to keep the world currencies from fleeing across countries and to decrease the speculative end of the market.
Up until World War II, the Great British Pound (GBP) was the currency by which most all other currencies were measured. When the British fell victim to German Nazi counterfeiting during WW II, thus devaluing the Great British Pound, the U.S. Dollar became the standard by which other currencies were valued. In fact, the destruction to Europe during World War II allowed the U.S Dollar, which had become a failed currency during The Great Depression, to rise from the ashes and become the dominant world currency.
The Bretton Woods Accord didnt last a long time, but it lasted until 1971, long enough to accomplish its mission, which was to re-establish monetary consistency and stability to post war Europe and Japan.
Our present day Forex Market, as we know it, began in 1973 when currencies were allowed to become part of a free-floating system since none of the agreements or accords were then in force. In 1978, the free-floating arrangement was officially required of all major currencies. All major currencies move independently of one another in todays world. They are no longer tied to a particular accord. This can lead to increased speculation with central banks occasionally intervening to get currencies back to desired levels. Basically it is supply and demand for currencies that is the driving force today in the Forex Market.
If you are considering becoming involved in the first market ever established for profiting from currency fluctuations, you may want to consider the Forex Market. It is tried and true and was the first. It is also less complicated and has more liquidity than any other market. This is important when you are trying to develop a trading strategy for maximizing your profits.