The Global Forex Market: What It Is, How It Began

One of the fastest and most aggressive markets today, so far, is the global Forex market. Let's take a look at what it is, it's history, what are traded, and how is trading done. Let us give you the details on this multi-billion dollar industry.

First of all the Forex market is a cash market. Yes, in this market we do not trade goods or produce, instead we trade currencies. In this market currencies of other nations are traded continually. Typically trade is done through brokers. These currencies are simultaneously sold and bought across both local and global markets.

Based on currency movements the value of investments in the Forex market increases or decreases. Often these movements change rapidly. This rapid change in market conditions is often due to the market's response to real-time events in trade, and political or economic conditions in the different countries.

Though this may be the case the global Forex market remains attractive to private investors. One of the features of short-term currency trading is its 24-hour trading. Any private investor can trade 5 days a week. Access to the Forex market information is nonstop - largely due to the introduction of online trading.

The Forex market is a liquid market. It is very easy to trade most currencies. Its volatile market also offers many profit opportunities. A trader therefore has the opportunity to make profits not only in rising markets but even in falling markets! Though risk in the global Forex market is very evident there are standard instruments in place for controlling an investor's risk exposure.

When did all this begin? Let's take a look at the evolution of the global Forex market. In 1944 the Bretton-Woods Agreement was established. The US Dollar rate was set at 35USD/oz. of gold. All other currencies are now compared against the US dollar.

It's aim was to establish monetary stability accross different currencies. It prevents currencies from immediately moving swiftly across countries. It therefore curbed speculation in foreign currencies. As an example in 1967 a Chicago bank refused to make a loan to Milton Friedman, a college professor. The loan was in pound sterling. This refusal was due to the professor's intent to use the funds to short out the British currency. The basis for this refusal is the Bretton-Woods Agreement.

The dollar therefore gained a premium position as a reference currency. Participating countries to the Forex market agreed to maintain the value of their individual currencies within a narrow margin. They were prohibited from devaluing currencies to benefit export markets. Currency devaluation was allowed only at a rate of 10%.

In 1971 the agreement was scrapped. Supply and demand was now in control of the currencies of industrialized nations by 1973. At this time currencies freely moved across economies. Throughout the 1970's currency prices in the Forex market moved in volumes, speedily, and greater volatility. Soon trade liberalization emerged.

In the 1980s the Forex market was boosted by computer technology. Transactions increased rapidly from 70 billion dollars a day to more than 2 trillion dollars. Trade across American, European, and Asian borders have accelerated - further extending the global Forex market.

With the help of the internet, trade in the Forex market today has included private individuals. Anyone can now trade anytime and anywhere during trading days (at times trading is also done over the weekend).

With the evolution of the global Forex market comes promising opportunities for those who would like to engage in this billion-dollar industry. It is indeed a market that is fast-paced and is full of potential.