The History of Forex Trading
Posted in Forex Trading on 22. May, 2011
Posted By EightNine On 22nd May 2011
Forex trading has a long history, pretty much as long as money has been around. However for most of the history of currency trading there was no money to be made from it, it was just done to facilitate business. However over the last three decades forex trading has become much more common and huge fortunes are now made in this manner. The key was the decision in the nineteen seventies to allow the world’s major currencies to float freely against each other.
The history of forex trading is as old as money itself. In fact it used to be much more common because there were so many different currencies. In the days of the city states each city would produce its own currency that meant that any time trade was done between two cities currencies needed to be exchanged. Even in the early days of the United States this was an issue, there was no standard American currency. Instead dozens of currencies were accepted and people had to know how they all related to each other in value.
Although currency trading was common in the past it was not done for profit in the way that it is today. Currencies used to have a fixed value which was determined by whatever asset was backing the currency. Most commonly this was gold, each currency was worth a certain amount of gold, you could then determine the exchange rate based on how much gold each currency bought. This meant that there was no profit to be had in trading currencies and they were traded solely to facilitate trade. This tended to create a liquidity problem since the supply and demand of various currencies were rarely in balance.
The move towards forex trading as we know it occurred in the 1970’s, the first step was when the United States went off the gold standard in 1972. However the real step towards true forex trading occurred in 1978 when it was agreed that the world’s major currencies would be allowed to float freely against each other. This meant that it was now possible to make money by speculating on the future value of one currency relative to another. This move not only made currency trading possible it also solved the liquidity problems that existed when exchange rates were fixed.
In the early days of forex trading it was almost always done by large banks and certain wealthy traders. The reason for this was that they were the only ones who had access to the kind of information that was required to be a successful currency trader. Without having access to the minute by minute changes in the value of a currency it is virtually impossible to trade profitably. In the days before the internet access to this information was strictly limited. In recent years however a lot more people have entered the forex trading game as they can now get the required information online quite easily.
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