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Monday, June 17, 2013

A history of forex trading - Without tears

 Currency values depend on economic strength and supply
Currency trading is an ancient practice
By Richard Potter

The modern Foreign Exchange Market (known as the Forex Market or just Forex) is the market on which all currencies are traded worldwide. It has a strong influence on the global economy and has been in the news quite a lot over the past few years, since the economic crisis began in 2008. How did we get to this situation - where the lives of billions of people can be affected by the actions of a few currency traders? Let’s take a look at the history of the forex market and perhaps you’ll gain some insight.

Forex in the classical world

Money lending is perhaps one of the oldest non-manual jobs; texts as far back as the bible mention money lending and exchanging which is said to have taken place at the temples on non-religious days. According to these ancient texts the first money lenders and exchangers were usually gold or silversmiths – which explains how they were able to amass enough precious resources to be able to lend to, or exchange with, other less fortunate parties. This could be considered the first ever foreign exchange market.

Forex in the Renaissance era

According to contemporary literature, the Medici family of Florence were the biggest money exchangers of the day. Although much of Italy’s wealth resided within the church by this time – almost all transactions that went on outside this circle were touched upon by the Medici family or those who traded with them. The Medici family owned and ran a world-wide textiles trading firm and were one of the first groups to open a bank in a foreign country – in some way this could be considered one of the first currency exchanges.

Forex in the Industrial Age

By the 17th century forex trading had become an established financial activity. It is believed that Amsterdam had one of the first official foreign exchanges and that this may have been set up as part of a massive exchange of currency which took place between the governments of the Netherlands and the United Kingdom. By 1880 The Gold Standard had been enacted and all currencies were (in the western world) measured against their value in gold. During this stage the British Empire was at its peak and around ½ of all currency trades were made in sterling. However with the advent of two world wars this soon changed forever.

Post-war forex

Before the First World War, Britain had been markedly slow to take up financial trading as it was seen as a risky business compared to the acquisition of land, property and goods. WWI and WWII had a great impact on the financial markets in several ways and for several reasons. By the end of WWII Britain’s Empire had virtually collapsed and the English were forced to look at trading as a means of regaining their losses. By 1928 London had become an integral part of the international currency markets. It was also during this period that the Gold Standard was dropped. The main reason for this was the cost of the war. Governments simply didn’t have enough gold to cover the equivalent cost of the war effort. From this point onwards currencies were measured against the US Dollar.

Forex in the modern world

Many people attribute the true beginning of the modern Forex Market to 1973 which is when the forex markets first became fully digital and fully deregulated (or as close as was possible) becoming a free floating exchange. From 1982 traders were being offered fixed rate currency pairs and slowly but inexorably the forex market has grown to be worth an estimated $3.9 trillion globally.

If you are looking to begin in the fast paced world of forex trading, there’s a lot of room to make a success of yourself – but be warned there is also a huge chance of making a loss – potentially very damaging losses. Being a trader requires strategic thinking and tactical management of your accounts. Forex isn’t a game you can play if you don’t have a good head for mathematics.  One of the best way to get started trading is with a demo account – an fx demo account will allow you to practice your trades with virtual money so you can learn the how the market works before you risk any of your heard earned cash.

About the author, Richard Potter: I am a copywriter and poet with a bachelor’s degree in English Language and Creative Writing. I have worked in various marketing & creative roles since 2001. My aim is to publish at least one novel before I die – so far I have had 2 poems published internationally in print as well as some online. In my professional capacity I currently work for an advertising agency in London.

* Image license: PD

1 comment:

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