History of the Forex Market

Foreign exchange dates back to ancient times, when traders first began exchanging coins from different countries. However, the foreign exchange itself is the newest of the financial markets.  In the last hundred years, the foreign exchange has undergone some dramatic transformations.  The Bretton Woods Agreement, set up in 1944, remained intact until the early 1970s.

At this conference, representatives from 45 nations came together to discuss the future exchange system. The conference result in the formation of the International Monetary Fund. It produced an agreement that fixed currencies in an exchange rate system that tolerated 10% currency fluctuations to gold values, or to the dollar that was established as the Gold Standard.

Traditionally, private traders only means of gaining access to the foreign exchange market was through banks that transacted large amounts of currencies for commercial and investment purposes. Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971. In 1971, the Bretton Woods Agreement was first tested because of uncontrollable currency rate fluctuations, by 1973 the gold standard was abandoned by president Richard Nixon, currencies where finally allowed to float freely. Thereafter, the foreign exchange market quickly established itself as the financial market. 

Forex Market Players

Before the year 1998, the foreign exchange market was only available to larger entities trading currencies for commercial and investment purposes through banks, now online currency trading platforms and the internet allow smaller financial institutions and retail investors access a similar level of liquidity as the major foreign exchange banks, by offering a gateway to the primary (Interbank) market.

The FOREX refers to the Foreign Currency Exchange Market in which over 4,600 International Banks and millions of small and large speculators participate worldwide. Every day this worldwide market exchanges more than $1.7 trillion in dozens of different currencies. With the current growth rate the market is projected to grow to more than $1.9 trillion per day by the year 2006.

Forex Exchange Compared to Other Finacial Markets

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