When studying trading and all its intricacies, you should not forget to visit its history. The Forex market is currently the largest and arguably most active financial market in the world right now, with over $6.6 trillion daily turnover.
The market did not start off as bountiful, alive, and inclusive – it had quite a long journey before it became the market everyone in the contemporary world knows now. Here’s a rundown of the history of Forex margin trading, from its very beginning to its current state today.
The Birth of the System
Even if you’re not alive during the era, you’ve most likely heard about World War I and II and how utterly destructive they were. After the second world war, the whole world was in so much disorder – poverty was increasing and economies were dying one after the other. The situation inspired the major governments in the West to establish a system that would help the global economy regain its footing once again.
The year was 1944 and the Bretton Woods System was created. Financiers around the world realized how useful foreign exchange markets could be which led them to draft the system. The Bretton Woods agreement allowed every other existing currency to be pitted against the mighty US dollar by setting its exchange rate against gold. This notably made the US dollar the basis for currency trading, dethroning gold.
For a good while, exchange rates were doing great. The Bretton Woods System helped some economies recover even just a bit from their ruined state. However, the world is fast-paced and changes are inevitable – soon enough, major economies changed and grew to the point that the system’s regulations could no longer keep up.
A Free Currency Market
Effective for almost 30 years, the Bretton Woods System was abolished in 1971. A new currency valuation system took its position. The major currencies no longer relied on fixed rates for exchanging foreign currency. The market became free where only supply and demand governed the rise and fall of exchange rates.
It was undeniably a challenge to determine the fairest exchange rate for every currency. However, technological and communication advancements made it possible to manage the currency market efficiently. As the years progressed, online brokers and trading platforms have become mainstream. The market was easier for international banks, brokers, and investors to access currency trading data every day without much hassle.
The Collision of the Internet and Trading
The 1990s was the start of currency trading going online. Computers were widespread and the internet was used more than in the past years. Banks reckoned that this was the best time to finally create their own trading platforms that would let them be closer to the trades. Such platforms allowed the banks to give live quotes to every single one of their clients and do the trading by themselves without any delay.
But some people had other ideas. Since banks established their own platforms, they thought about giving people the power to trade on their own. Simply put, they would do all the work by themselves without needing the assistance of a bank to trade currencies. Retail Forex brokers came into the picture.
Retail FX brokers did not only allow but also made it a piece of cake for individuals to trade currencies. They warranted people to trade in smaller sizes – around 1000 units – rather than the standard size of 1,000,000 units in the interbank market. Due to the additions in Forex trading options, more individuals were participating in the Forex Market
The Current Market
The currency trading market nowadays is certainly far from where it started. First off, it is much more inclusive compared to its state before the 1990s. Only the “big guys” who had high investment funds could have the ability to trade currencies back then. But now, retail Forex brokers have made it possible for even a normal person to enter the world of trading.
If it is not obvious yet, another great development in the currency trading market is inclusivity. Today, not only the rich ones can trade – as long as you have enough money to spare for trading, no matter who you are, you can trade. Anyone can just connect with a broker, create a trading account, and start trading currencies anywhere at any time.
It’s great to have knowledge of trading history. This can be used to predict the behavior of the market in the future, what strategies you can utilize, and even who to work with. Do not be discouraged if you’re new to trading and things don’t look great – remember that even the Forex market itself isn’t the best right off the bat.
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