Gold & Forex International - Where It All Began
Gold & Forex International
Gold & Forex International
The origin of modern currency trading and the foreign exchange market (Forex) can be traced back to 1944, when the United Nations Monetary Fund arranged a meeting with the Allied Nations in rural New Hampshire to develop a plan for stabilizing the world economy. Gold & Forex International
Known as the Bretton Woods Conference, participating nations got together and agreed to create a gold-based exchange rate for their own individual currencies. The meeting also accomplished the creation of the International Monetary Fund (IMF) and the World Bank.
Prior to World War II, the British Pound had been the "benchmark currency of exchange" in comparison to the relative value of other foreign currencies.
All that changed when Hitler's regime managed to devalue the Pound through a massive counterfeiting scheme. Drastic measures had to be taken in order to prevent a worldwide economic depression from happening.
Out of this meeting came the Bretton Woods Accord. This new policy initiated the gold standard, which tied the value the U.S. Dollar to the price of one ounce of gold ($35 per ounce at the time).
At this time it was also agreed that the U.S. Dollar would replace the British Pound as the world's reserve currency.
The Bretton Woods accord remained in effect until 1971, when it was determined that the value of the U.S. dollar could no longer stay fixed relative to gold.
In August of 1971, President Nixon ended the international gold standard, and for the first time in modern history, the dominant world currency was no longer backed by gold.
This led to the current fiat based monetary system (money not backed by a physical commodity) where it could be exploited and manipulated.
So the 'fixed exchange rate' model was abandoned in favor of the 'floating exchange rate' we use today. A floating exchange rate is determined by the market forces of supply and demand.
From Frail Copper Wires to Computers and Silicon Chips
As you can imagine, the advancement of technology over the years has been responsible for major changes to the Foreign Exchange marketplace.
For most of the early 20th century, international currency transactions were done primarily by telegram, telephone and telex machine (the predecessor to modern fax machine).
The financial services industry got a serious boost when the computer age of the 1960s and 1970s introduced new ways to transfer electronic data between banks and other institutions.
The advent of high-speed digital data lines and satellite-based communications systems brought with it the ability for foreign exchange transactions to be conducted in "real time."
Nowadays, all you need to get started is a computer and a high-speed Internet connection.
But things weren't always that way, because up until around 1997, the Forex market was a playground for only the "big guys."
Gold & Forex InternationalIf you wanted to trade as an individual, you'd have to come to the table with a minimum of $10 - $50 Million bucks to start with.
Forex was originally intended for bankers, hedge funds, and large institutions, but thanks to the Internet, an ever-growing supply of online retail Forex brokers are now able to offer trading accounts to us "little guys" with minimums as low as fifty bucks.
Individual investors and traders like us only represent about 10% of the entire trading community, but we're a large enough group for programmers to be motivated to create automated systems for.
Here's a list of the major players:
Banks
Governments
Corporations
Other related financial markets and institutions (i.e. hedge funds, brokers, etc.)
Speculators (you and I)
Unlike the stock markets, in the Forex market there's a certain 'pecking order' of sorts that determines who gets the best prices.
The "bid" price and "asking" price (also known as the "spread") between currencies is in part based on the size and volume of the trade, and not all Forex traders enjoy equal access to the same prices.
In fact, the "players" who can put more money on the line, get the better "spread."
And as you can imagine, that puts the world's central banks at the top of the food chain, followed by governments and large financial institutions, then corporations, etc.
The big players are referred to as the '800 pound gorillas' of the Forex market because they're able to generate serious profits due to the amount of volume they can move with one single trade.
So you might be wondering how individual traders like you and I fit into the equation...
The short answer is, we don't... at least, not on our own.
Like I said, we only represent about 10% of all traders worldwide, so the only way for "Retail Traders" like us can buy and sell currencies on the foreign exchange market is to go through retail brokerage firm.
Gold & Forex InternationalGold & Forex International - Where It All Began
By: Forex Expert
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