History of Forex Trading

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The buying of one currency and selling of another currency is called forex trading. But how did it all start? Lets have a look over the history of forex trading.

Forex market happens to be the largest and most liquid market of the world having a turnover of trillion dollars a day.

Forex trading is the currency trade and buying the currency of one nation while at the same time selling the other nation’s currency. Due to globalization, majority of the countries have weak hold on the money exchange rates that has resulted in the liquidity of the market. The forex market is open 24 hours a day and that allows anyone from anywhere in the world to trade any currency.

It was in the early 70s when currencies took the form of a financial product that could also be traded. The main reason for this is the lifting of the gold standard of the currency and marking them as free-floating currency. Then later in the early 80s, the forex market became well established with the increased movement of people and currencies across the border.

For the individual trader, the market reached new heights when online currency trading was introduced on the internet. London and New York hold important position of the largest trading currency cities and this comes from their geographical positioning. There are no centralized exchanges in forex trades but over the counter which are called OTC via broker and dealer interaction.

High-speed electronic communication networks are needed for over the counter trading along with trading systems and ECNs. There are both online, web based or broker side forex platforms amongst the forex trading systems. There are also client side or direct access or stand-alone in the forex trading platforms. The first one is used by the forex investors and those who are not really active forex traders and short-term active traders like forex day traders use the second option.

There are total five major currencies present in the forex market and these are the US Dollar, British Pound, Japanese Yen, Euro and the Swiss Franc. There are different currency pairs like USD/JPY, EUR/USD etc. and forex is done in currency pairs. Combined together all of these currencies comprise for over 70% of the forex trades. The introduction of euro in the forex market was quite a major event and now the development of two Asian countries China and India as economic powers has also been quite an important event.

Some large banks happen to be the biggest beneficiaries of the money market and 80% of the forex trades are carried out by banks. According to an estimate, major banks deposit around 30% of their money in the forex market and then make about 45% of their profit with the help of this market. A large number of forex brokerages help the individuals to make profit by forex trade. There is lot of risk involved in the forex trade and the currency interest rates are always changing both ways as well.