Forex, or foreign exchange trading, is arguably one of the oldest forms of financial trading. It has its roots in the activities of money-changers who operated in large trade centres. One of the biggest was Byzantium, modern day Istanbul, where eventually the city seized the monopoly of changing currencies. This would not be the last time governments tried to keep control of this lucrative market!
Later, foreign exchange started to grow as a market in Europe, particularly in Amsterdam, where an exchange came into being in the early 1700s. This led to international exchange between England and Holland in 1704. The late nineteenth century saw the beginnings of what we would now recognise as foreign exchange, with the introduction of the gold standard in 1880. The gold standard was a way of different countries agreeing a standard economic unit, thereby helping to facilitate foreign exchange.
The early twentieth century saw foreign exchange become a huge part of trade in the UK, with the number of foreign banks in London rising from three in 1860 to 71 in 1913. The 1920s brought with it a boom in foreign exchange, and by the end of the decade it was one of the key sections of financial market.
After the ravages of the Great Depression and World War Two, an attempt was made to stabilise the international money market, and the Bretton Woods agreement was signed. It basically regulated foreign exchange rates by making each country who signed up tie its currency to the US dollar. This agreement lasted until America, under Richard Nixon, ended the convertability of US dollars to gold, making it a free-floating currency. This occurred in 1971, when conditions were more favourable to a less restricted foreign exchange market. It is now far more common for the dollar to be kept in reserve than gold, for this very reason.
From the end of the Bretton Woods agreement, the foreign exchange market took on more or less the shape we see it in today. Reuters introduced computers into their transaction process in 1973, and now a great deal of forex is conducted electronically over the internet. The 1980s saw an opening up of many country’s markets to allow free trade with regards foreign exchange, and the global forex market now has the greatest liquidity of any financial market.
Risk warning: Spreadbetting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.