Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Wisdom

Foreign Exchange Trading: From the Ancient Beginning to Today’s Forex Market

By James Redfin

During the 16th century, there was no standardized monetary system in the world. There was no such thing as a currency exchange. But there were money exchange transactions.

People used to trade goods that they had in exchange for something that they wanted. And then, later on, everything became convertible into gold, which served as their universal currency. But due to some impracticalities and unfortunate events, the gold standard has caused a boom-busted economic pattern, leading to a series of happenings that brought the foreign exchange known today.

Forex includes trading transactions of two different currencies. The trading takes place over-the-counter, wherein traders buy, sell, and exchange currencies at the present known rates or prices. Forex trading is a sophisticated type of business, which involves processes like forex commission, the percentage in point forex swap rates from EverForex and many more.

The Foreign Exchange Market

Today, the Forex market has reached the top of the largest markets in the world that currency exchange worth 5 trillion dollars comes in every day.

More people are trying foreign exchange as a profitable, stable, and reliable way of earning money. In this economy, the traders have become more knowledgeable of the ins and outs of the Forex market and the Forex trading concepts attached to it, such as fundamental analysis, trend trading, technical analysis, momentum trading, and so much more.

Forex trading can be a difficult road to opulence, but prudent management of leverage, losses, and brokerage would lead to success in forex. People make money in the Forex swap as well, wherein they buy and sell identical amounts of one currency for another at the same time with the suede of forex derivatives at two different value dates.

The Ancient Forex

Forex would not be the global reach of trade, commerce, and finance that is today without its ancient centuries-old trade affairs.

The first trading transaction goes back in the Babylonian period in 6000 BC, wherein the Mesopotamia tribes introduced the earliest way of exchange called the barter system. It refers to exchange goods for another like salts and spices, delivered through ships for barter.

But the system lacks convertibility, portability, and divisibility. It posed difficulties in determining the worth of cows, goats, and the others, as well as delivering them. And what if four cows were agreed to worth one goat, how would one cow be traded then?

The Gold Standard

Not until the periods between 1815 and World War I when the gold coins served as a currency for exchange. It has a remarkable influence on the Forex trading and made trading more uniform, acceptable, and portable as the currency of each country was convertible to gold.

But the gold standard had its drawbacks. More countries imported goods from the others until the full consumption of their gold reserves, which led to the boom and bust cycle of economic expansion and contraction in many countries.

Traders accepted the gold standard until the occurrence of World War I, wherein the European countries stopped the gold standard operation in making way for printed money to pay for the war. And yet after several wars, the gold standard comes back and has spread to developed countries like France, Germany, and Japan.

War after war, the system of trading transformed into something more organized. Several countries designed a new global economic order, began to develop an adjustable pegged foreign exchange wherein the currency is fixed to another one, tried the free-floating system of currency trading, and many more.

The establishment of other forms of currencies also happened, including the Euro currency. Euro-markets were convenient due to their higher yields and fewer restrictions.

Internet Trading

In the 1990s, the foreign exchange markets became more sophisticated and efficient. More traders realized the potential of currency trading for gaining profits, attributable to the surfacing of the internet and advances in communication.

Booming currency markets that provide sophistication and convenience also arose into the Forex trading world. More banks have created their trading platforms. Brokers have introduced internet trading-based currency exchange.

And the suspended currencies during the reign of the totalitarian political systems came back to trading. Other emerging Forex markets rose into currency trading as well, including the countries of Southeast Asia.