Dating back to the early civilization
If we think about it, the forex market is a new and modern take on trading currencies. However, if we trace back its humble beginnings, we can say that currency exchange has been there since the early civilization when people did trading to survive.
In the middle ages, people would go to a place where people gathered to exchange their goods since there was no money during that time— only a barter system. For example, a man would trade their sheep, chicken, or animals for another good like rice or bread.
The next was gold
Later on, people made coins out of silver and metal and became the standard method of payment. We can say that this point is the birth of the forex market. People made ports where massive cargo ships arrive as the primary market places. Boats from all over the world arrive to buy and sell various goods where gold was the international currency.
Some countries may bring their own currency. Converting paper money to the equivalent gold amount was possible, but it was a rare occurrence. As a result, there was massive inflation because the paper money supply was too much, and gold cannot keep up. This phenomenon led to political instability.
They needed stability
The Bretton Woods agreement somehow gave a slight relief in the latter part of World War II when the economic instability was too much. This agreement pegged all currency amounts to the amount of gold, and gold’s value is in terms of USD.
People thought that everything was going smoothly because this has halted selfish people from manipulating money.
It is also true that this also controlled fluctuation in currency trades. Even the global supply of gold can’t keep up with USD demand as a reserve currency. The Bretton Woods agreement solution is relatively temporary since it is now stopping the world from economic growth.
The free-floating currency system
In 1971, President Nixon ended the Bretton Woods agreement because the USD cannot keep up with the rate of gold at $35 per ounce. As a result, foreign exchange is now a floating currency system where each currency’s value depends on the market’s supply and demand. There were times when they tried to bring back the USD currency peg, but foreign exchange remained afloat.
Even remote forex traders create an impact on global currency values in their trading activities. If a forex trader trades with perfect timing, they can use the price fluctuation as an edge.
The modern forex market that we have today
People traded with floating currency, especially the people who are rich and loaded. In 1990, the Electronic Communications Network (ECN) facilitated electronic trading after people started recognizing and using the internet. ECN connected traders from all over the world with different locations and timezones without a central market.
Later on, the forex market started having forex brokers, also known as market makers, who serve as middlemen between traders. Traders can access the ECN network through them, and they can set their bid/ ask prices to profit.
Today, anyone can connect with brokers and the ECN by downloading software and platforms in minutes. The rich people can do trading nowadays, and even regular people can since brokers ask for minimal deposits. Trade is possible even with just a tiny amount. What’s more, is trading has become convenient since it can be done remotely at any time.