Foreign Currency Exchange Services - Origin of Forex Trading

Foreign currency exchange trading or simply Forex Trading has its origins way back in the middle ages when traders, merchants, and bankers who are doing transactions internationally require their local currency to be converted into a foreign currency. During these times, foreign currency trading was done physically which requires an individual to literally bring the cash or funds to a banker or trader who is willing to buy the foreign currency.

However, today’s foreign currency trading practice is no longer of that in the middle ages. The foreign currency exchange itself does not even need to happen physically. Foreign currency trading can be done in just a second. No need for you to go to your banks or to any foreign country just to purchase the currency that you want.

Brief History

During the 1816 to 1933 period, the value of currencies in the foreign currency exchange rate market was determined by what they call as the ‘gold standard’. It was a fixed commodity standard wherein participating nations fixed a certain physical quantity of gold against the currency in circulation. For instance, the pound sterling was valued at 123.27 grains of gold, making it the primary reserve currency during that era.

The United States joined the ‘gold standard’ in 1879 and replaced the British Pound as a standard bearer when the European countries were heavily affected with the World War I outbreak in 1914. And with the collapse of the international trade prior to the Second World War, the United States dollar eventually fortifies the replacement of the British Pound as the reserve currency. Today, some world currencies are pegged to the ‘most stable’ currency, the United States dollars.

Pegging to the US Dollar

The pegging of the major currencies to the United States dollar happened after the Second World War when United States, Britain, and France agreed on it after the Bretton Woods Accord in 1944. This accord also obliges the participating countries whose currency is pegged to the dollar to allow their central bank to step in and buy or sell the currency if more than one percent fluctuation occurs against the United States dollar.

Bretton Woods Accord

The Bretton Woods was attended by 45 countries at the request of the United States to create a global financial network which will ensure post war prosperity and to prevent the 1930’s global depression from happening again.

The following were the key features in the Bretton Woods Accord:

• exchange rates that are fixed but adjustable
• the creation of the International Monetary Fund or the IMF
• the creation of the World Bank

The Bretton Woods Accord, as mentioned, sets off the creation of the International Monetary Fund or the IMF which is established to safeguard the efficiency of the foreign currency exchange rates and transactions. In addition, the IMF is also assigned to provide financial resources to member countries. Loans are given to participating nations if there is a need to correct an existing condition that is affecting the foreign currency exchange Market.

Short Timeline

Below is a timeline of significant events that shaped the foreign currency exchange market to what it is now.

Year 1978

The International Monetary Fund or IMF proposes that currencies should become “free-floating.” This means that currencies are no longer required to be pegged to the United States dollar. Currencies are allowed to fluctuate while the central bank of the concerned currency is no longer obliged to intervene.

Year 1979.

The European Monetary System was created in this year.

Year 1998.

The birth of the Euro which is the European Union’s unified currency. This is so far the final major event that has affected the foreign currency exchange market.

Trading at Present

Foreign currency trading today has never been easy since the foreign currency exchange transactions itself can already be done at home or to any individual’s premises. Due to the availability of highly reliable internet connection and state of the art computers, a trader can already buy and sell currencies at the comfort of his home. Foreign Currency trading transactions can be done in lightning speed and fluctuations of currencies can be accessed real time, every second.

Although an individual may be residing in the United States, he or she can still buy and/or sell various foreign currencies by utilizing brokers who will provide a foreign currency trading platform. These platforms will enable an individual to access real time data on the foreign currency exchange market including currency fluctuations. There are also highly sophisticated foreign currency trading platforms that allow a trader to draw or add indicators. The indicators will aid the trader in his or her trading strategies and decisions.

A daily turn over of 1.5 trillion United States dollars have been reported for the foreign currency exchange market, making this the highly traded exchange.

More Info on : Bank Wire Transfer | Buy Foreign Currency | Canadian Exchange Rate | Currency Exchange Calculator | Currency Exchange Foreign