History of Forex Trading and it’s Recent Growth
If you want to truly understand the concept of forex trading, you have to go back to a time where currency didn’t exist. In this article, we will do just that, providing a well detailed summary of FX trading from its roots until present day.
In the beginning, bartering was the main method of buying and selling goods, with the value of one good usually expressed in terms of another. For example, “one cow would be worth 10 bear skins”. Since this was obviously not very efficient, the traditional bartering method was soon replaced by coining metals, such as gold and silver.
With the introduction of the Roman gold/silver coin, trade and foreign exchange were greatly expanded during the biblical times. Soon after word spread, both coins gained a wide acceptance in the Middle East and other parts of the world. With the inefficiency of bartering restricting the economy, the coin was finally implemented, now becoming the world standard for payment. Though it seems rather simple, this was the first major step to forming an efficient international monetary system.
In the early 1800’s, the Gold Standard was implemented to prevent run-away inflation and define the value of world currencies. By definition, the Gold Standard was a commitment by participating countries to fix the price of their domestic currency in relation to the amount of Gold they held on reserve. Though this was a good temporary solution, once international trade started to grow, the global economy demanded a better monetary system. With the Gold Standard on it’s way out, the “floating exchange rate” answered the call, providing a reliable monetary system that could finally keep up with the growing economy.
Though the world was used to a “fixed-exchange rate” for all currencies, the benefits and characteristics of a floating exchange rate could not be ignored. The theory was, as floating exchange rates automatically adjust via the market, they help the country dampen the impact of shocks and foreign business cycles. Among other things, this prevents the possibility of a balance of payments crisis. Under economic theory, if the currency was low in value, it would be purchased by investors who felt it was under-priced. This would bringing the currency back up in value, keeping the market stable. Since it seemed like a win-win for everyone, helping investors, world trade, and governments, it wasn’t long until the floating exchange rate became the new monetary standard.
Once the floating exchange rate became widely accepted, this new monetary policy created immense opportunity for those interested in speculation. In the 1970’s, forex trading slowly grew in popularity until it reached over 70 Billion dollars in the 1980’s. Though many thought the growth in FX trading was astonishing, since then, the once 70 Billion dollar forex market has turned into a 2 Trillion per day industry!
You may be saying, “Am I reading that right, 2 Trillion? Why has there been so much growth in the forex market over recent years”? Well, the answer to that question can be summarized by listing 3 important points.
1. Anyone can Become a Forex Trader: You can easily start a demo forex trading account via the internet, and be practicing your strategies in minutes. There is no licensed required to trade forex, just an honest time commitment and some start-up capital.
2. Internet Offers Valuable Forex Tools: There are endless forex sites which give you free tips, insight, and educational tools to help increase your chances of success. Really, if you have the right personality and love to research, the Internet gives you everything you need to become rich trading forex.
3. High Profit Potential from Leveraged FX Trades: By nature, humans love to earn money fast. In the forex market, this is exactly what you can do if you’re smart. For example, if you use 400:1 leverage and trade several lots, you can earn as high as 50% on your money in just a day!
As you can see by the 3 points we’ve listed above, forex trading has become popular for a good reason. Though growth has become immense over the last 20 years, it looks as if the FX market will only get bigger in the future. Even with increased regulation from the US government, it seems like nothing can slow down the momentum of FX, and the fact is, it’s peak has yet to come…
InsideTrade LLC Staff
Phone: (949) 444-2111