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The ORIGINAL Forex Currency Exchange Review Site
Forex Review - The history of Forex.
Forex currency trading is not a new concept. It has been taking place for
several decades. The thing that has changed in the last few years is the
availability for average citizens to conduct forex trades from home, using
various forex trading platforms and their home computer to buy and sell currency
over the Internet.
Until a few years ago, forex trading was done almost exclusively by banks,
investment firms and other large financial brokers. However, the recent
advancements in technology and computer networking have transformed the forex
industry into a global electronic network that trades in real time 24 hours a
day.
Almost everyone has experienced the concept of foreign currency exchange at it's
most basic level - buying a foreign currency in order to travel abroad.
Depending on your currencies current value versus other currencies, sometimes you
get more of a foreign currency - and sometimes you get less. Banks constantly
profit on this foreign currency exchange as they generally charge you a few
extra points whether you are buying or selling a specific currency.
You will almost never be able to buy or sell a currency for the same rate that's posted
on global markets. The bank is essentially buying that currency at a specific
price, and then selling it to it's customers at a slightly higher rate. You will
be doing the exact same thing when you engage in forex trading.
Understanding forex trading can seem quite complicated, but at it's core foreign
currency trading is actually very simple. However, understanding forex is easier
if you understand the evolution of currencies, the gold standard, and the
history of the US dollar. We will explain how foreign currency exchange has
evolved in the last century to become the thriving marketplace that it is today.
Foreign Currency Exchange - Through the
years.
Prior to World War II, the 'gold exchange standard' ruled the international
economic system. Although paper currency had replaced gold as the currency of
choice around the world, the gold standard ensured that the government of each
country would guarantee the value of a paper currency for it's equivalent value
in gold.
This method of course had several drawbacks, one of them being that a country
was limited in the amount of currency it could distribute by the amount of gold
it physically held in reserve. On the plus side, this made currencies very
stable as they were guaranteed by the government, and were supported by the
price of gold. Prior to the Bretton Woods Agreement (see below), the gold exchange standard -- paramount between 1876 and World War I -- ruled over the international economic
system until the end of World War II.
One problem with the gold exchange standard was that it created a weakness of boom-bust patterns. As a country's economy strengthened,
its imports would increase until the country ran down its gold reserves, which were required to support its currency. As a result, the money
supply would diminish, interest rates escalate and economic activity slowed to the point of recession. Ultimately, prices of commodities
would hit bottom, appearing attractive to other nations, who would rush in and amid a buying frenzy inject the economy with gold until it increased its money
supply. This then drove down interest rates and restored wealth and stability into the economy. Such boom-bust patterns abounded throughout the
gold standard until World War I temporarily discontinued trade flows and the free movement of gold.
In 1944 the Bretton Woods Agreement was established which fixed national currencies against the
US dollar, and set the dollar at a rate 35 US dollars per ounce of gold. The agreement was aimed at establishing international
monetary steadiness by preventing money from taking flight across countries, and to curb speculation in the international
currency market. Participating countries agreed to try to maintain the value of their currency within a narrow margin against the
dollar and an equivalent rate of gold as needed. As a result, the US dollar gained a premium position as a reference currency,
reflecting the shift in global economic dominance from Europe to the USA.
Countries were prohibited from devaluing their currency to benefit their foreign trade and were only allowed to
devalue their currency by less than 10%. The great volume of international forex trade led to massive movements of
capital, which were generated by post-war construction during the 1950s, and this movement destabilized the foreign
exchange rates established in Bretton Woods.
This system ended in 1971 when US president Nixon announced the abandonment of the Bretton Woods
Agreement in that the US dollar would no longer be exchangeable into gold.
Within 2 years the forces of supply and demand controlled major industrialized nations' currencies, which now floated more freely across nations.
Prices were floated daily, with volumes, speed, and price volatility all increasing throughout the 1970s.
The onset of computers and technology in the 1980s accelerated the pace of cross-border capital
movements through Asian, European and American time zones. Transactions in foreign exchange increased intensively from nearly
1 billion
a day in the 1980s, to more than $1.9 trillion a day two decades later. Current estimates are that globally over
2 trillion dollars in forex
currency trading happens every single day, and that number continues to grow.
Forex Trading - Today.
Although forex currency trading has always been a huge global market, the
emergence of the internet and computer technology was responsible for a huge
growth in what was already the biggest trading market in the world. Until the
last decade or so, forex trading was made up of a fairly exclusive circle of
investment bankers, major financial institutions, and private brokers.
However, now that forex trading is completely linked by an electronic worldwide
network, anyone with internet access and a home computer can trade forex from
home any time of the day or night. Forex currency trading has really only been
available to the 'average person' in the last few years, as online forex brokers
have made it as easy as buying and selling stocks online. Of course, just like stock brokers,
forex brokers vary in commissions and platforms.
You should definitely spend some time learning about forex before deciding which
forex broker you deposit money with. While there are literally hundreds of forex
brokers available online, as with any industry the cream usually rises to the
top, and we advise you to stick with one of the leading forex platforms for
increased security and reliability.
If you conduct your own forex review you're sure to discover an excess of
information that almost leaves you wondering if maybe forex isn't too
complicated for you to try. We assure you that forex is not that hard, and
thousands of "ordinary people" just like you are trading forex and
many are making very good money as well.
Many forex review sites simply try and push you to sign up with one specific site
(where they just happen to earn commissions for your business!), or scare you
with "scam" reports about various forex brokers. Often these are
people who are simply trying to gain customers for themselves by scaring people
away from other forex brokers - after all, forex is an extremely competitive and
lucrative industry.
Here at Forex Review we are not going to try and steer you to just one company
for our own gain. Anyone who tells you that there is only one "worthy"
forex trading platform is lying to you, plain and simple.
The fact is there are several quality forex brokers that offer excellent forex
platforms, and you should investigate all of them to see which suits your
trading preferences and offers the best value for your deposit.
We encourage you to read our various forex reviews and learn more about forex
currency trading. Forex trading is actually quite simple compared to the stock
market, and buying and selling foreign currency can easily become a part-time or
even full-time income source, depending on how much time you have. Many people
have successfully transitioned to trading forex full time from home and quit
their regular jobs. If working from home and being your own boss sounds good to
you - then trading forex will certainly appeal to you.
 
Next: Forex Spreads
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