Just like other industries in the market, Foreign Exchange (Forex) is a dynamic financial global market. And as the world continues to evolve, the Forex industry has dramatically transformed toward a more thriving future. With more market players, Forex will continue to grow to shape international monetary systems. But to understand how the industry influences the financial community, it’s essential to know its significant developments.
Continue reading this article to learn how the Forex industry has changed over the years.
Foreign Exchange: An Overview
Generally, Foreign Exchange, also known as Forex, refers to a decentralized global financial market where global currency trading takes place. The Forex market is the biggest and the most liquid in the world with trillions of trading volume on a daily basis.
Similar to stocks, you can start trading currencies based on what you believe is their value. But what makes Forex a great currency market is your ability to trade up and down quickly. In other words, you can sell the currency if you think it’ll depreciate, and you can also buy it if you think it’ll increase in value. Because of these trends, you’ll probably have better chances of earning huge profits and improving your wealth.
Furthermore, the Foreign Exchange market is accessible 24 hours a day. With the assistance of reliable Forex brokers like Engineforex, you can trade any time without time restrictions. On the other hand, you should also consider the market’s volatility to get the most out of your revenues. After all, the exchange rate from one currency to another can change from time to time, which is why planning your trade position is essential.
Foreign Exchange: Understanding Its Historical Developments
By now, you already know what and how the Foreign Exchange industry works. If you’re looking to enter the market any time soon, you need to understand how it has developed to a more significant sector.
Here are some of the important events that happened in the Forex industry:
Before The Gold Standard
Before the creation of the Gold Standard system, countries around the world use Gold or Silver for trading and payment settlements. And when it comes to international trading, nations with trade surpluses utilize Gold to pay their exports. Meanwhile, countries with trade deficits maintain lower reserves of Gold for their imports.
That’s why given this trading and payment setup, the value of Gold and Silver will be affected by any changes in the supply and demand.
Introduction Of The Gold Standard
During this period, the first currency exchange happened, which marked the history of the Forex industry. Gold had become a strong commodity for several nations across the world. Since it was being used as a method of payment, the Gold Standard was introduced to the financial community to control the volatility of Gold as payments and ensure a specific currency conversion.
For instance, many developed countries set the value of their currencies equivalent to that of an ounce of Gold. As such, the countries needed to have a large reserve to sustain the demand for foreign currency exchanges. Also, at that time, the exchange rate was determined as the difference of an ounce of Gold between two currencies.
End Of The Gold Standard System
During World War I, the Gold Standard system started to fail when the value of Gold could no longer sustain the expenses involved in the printing of money. And with the increasing number of countries that decided to fund their military costs, the Gold Standard system was totally abandoned.
Moreover, the end of the system had been reinforced by global economic difficulties, bad government finances, and even international indebtedness. As a consequence, nations worldwide are in need of a more flexible and stable monetary system that can support the currency exchanges.
Conception Of The Bretton Woods System
During World War II, the Western nations conceptualized and created the Bretton Woods Agreement, which focused on the role of the U.S. Dollar to become the world’s reserve money. As a result, the value of the American Dollar was used to determine the exchange rate among all foreign currencies.
Primarily, this Bretton Woods system had been one of the significant developments in the foreign exchange industry.
Rise Of The Internet And Other Technological Innovations
With the growth of the Internet, the Forex market has also begun to change significantly. The modern innovations, along with Internet accessibility, encourage more traders and Forex brokers to adopt mobile trading apps and websites when it comes to trading.
Below are some ways the Internet has shaped the forex industry:
High Level Of Mobility And Freedom: With the help of the Internet, market players can enjoy a higher level of freedom in terms of keeping track of the pricing changes from anywhere across the globe. For example, regions like Europe, United States, Africa, and Asia have been taking advantage of this mobility and flexibility in trading. Because of the mobile Internet, many nations are beginning to open a forex trading market for their people who want to become successful traders.
Access To Virtual Educational Tools: Also, the advent of technological advancements such as educational tools and other resources provides people with access to real-time information, insights, and trading strategies necessary to properly operate in the market.
Social Media Communication: In addition to mobility, the Internet and other technological innovations give rise to the explosion of social media platforms as a communication tool for forex investors. With a variety of social media channels such as Facebook, Instagram, Twitter, and many more, traders, brokers, and other industry players can form online communities where they can share trading knowledge and experiences. This easy access to resources and community support can provide confidence to beginners and other investors.
Shared Knowledge And Skills In Trading: Lastly, technological innovations can help provide traders the ability to learn from one another through copy trading. Not only that, but it can also help in developing your ability to create a portfolio, which is essential in your trading efforts.
Indeed, the forex industry has transformed into a global currency market. With its momentous historical developments from the early stages of the Gold Standard to the age of the Internet, the market will continue to grow to provide an exciting range of trading opportunities to investors worldwide.