The author is an expert in the field of multi-asset trading.
A Brief History of Forex
You may know forex as the market that never sleeps and where trillions of dollars are traded each day, but exchanging currencies has been around for longer than you think.
Below is a brief history of forex trading through the ages.
- Currency trading and exchange has been around since ancient times, with evidence of coinage exchange appearing in Ancient Egypt as early as 259 BC.
- By the end of the middle ages, currencies begun being traded through the first network of international banks.
- In the 15th century, Florence’s Medici family opened banks in foreign locations to facilitate trade and exchange currencies on behalf of textile merchants.
- And during the 17th and 18th centuries Amsterdam already maintained an active Forex market, with exchange taking place between agents from England and Holland.
- But the roots of modern trading as we know it begun taking shape in the 19th century.
- In the US, firms such as Alexander Brown & Sons became leading currency traders around the 1850s, with new participants beginning to engage in the business of foreign exchange trading by the 1880s.
- But perhaps the single biggest event in the history of currency trading happened in the 1870s, when the Gold Standard Monetary System was created.
- Before the First World War, there was much less control over international trade, and the consequences of the war caused countries to abandon the gold standard by this time.
- In the period of 1899 to 1913 foreign exchange holdings increased by 10.8%, while holdings of gold increased by only 6.3%, marking the importance of the emerging Forex market.
- By the end of 1913 nearly half of the world’s foreign exchange was conducted using the pound sterling, but there were only two foreign exchange brokers operating in London. The most active trading centers instead were Paris, New York and Berlin.
- But by 1928, foreign exchange trading was integral to the financial functioning of the city, and trade in London began to resemble its modern status.
- In 1944, the famous Bretton Woods Accord was signed, which allowed currencies to fluctuate within a range of ±1% from the currency's par exchange rate.
- During President Nixon’s tenure the Bretton Woods Accord was scrapped along with fixed rates of exchange, resulting in a free-floating currency system.
- The ineffectiveness of the Bretton Woods Accord and the European Joint Float had caused the Forex markets to actually close from 1972 to March 1973.
- 1973 essentially marks the beginning of the modern Forex market, when the state control of foreign exchange ended and complete floating and relatively free market conditions began.
- The same year Reuters introduced computer monitors that replaced the old methods of telephone and telex for obtaining trading quotes.
- And in the mid-1980s Reuters developed a form of electronic Forex trading that preceded the advent of the Internet that served as a real-time closed network for traders.
- Today between $4 to 5 TRILLION are traded in the Forex market each day, making it the largest financial market in the world.
From its humble beginnings as an exchange of metal coins in Ancient Egypt to today’s electronic transactions of billions of dollars in milliseconds, the world of currency trading has changed a lot over the centuries, but the people’s need for trade and exchange has stayed the same.
If you want to take part in this long tradition, you can open a risk-free demo account and start trading in just minutes!