A Little History of the Forex Market

Forex, or FX is the international spot market for foreign currency. It is the largest market in the world with more than $2.9 trillion traded every day. The market appeals to individuals because of its enormous liquidity, high leverage, and the fact that it is open 24 hours a day, 6 days a week. Traders have the potential to make large profits from a small investment.

In 1944, the Bretton Woods Agreement was initiated in an effort to keep cash from draining out of war-ravaged Europe. Currency values were pegged to the U.S. Dollar, which was then pegged to the price of gold. In 1971, the modern era of foreign exchange first emerged with the collapse of the Bretton Woods Agreement. The U.S. Dollar was no longer convertible into gold, signaling an increase in currency market volatility and trading opportunities.

In 1973, the collapse of the subsequent Smithsonian and European Joint Float agreements signaled the real beginning of the free-floating currency exchange system that drives the markets today. As early as in the 1980’s, computer technology extended the reach of the exchange marketplace. The values of the major world currencies became independent of each other, with intervention available to states only through the central banking system.

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One Response to “A Little History of the Forex Market”

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