Forex Exchange Origins

It is of little or no importance to detail minutely the historical events that have shaped the foreign exchange market into what it is today. However to better understand what Forex is we will give you a more specific insight into the reasoning and importance to the Forex trader, of foreign exchange as a medium of exchanges of goods and services.

In the past, our ancestors conducted trading of goods against other goods. This system, known as bartering, was of course quite inefficient and required lengthy negotiation to strike an acceptable deal. In time, forms of metal such as bronze, silver and gold came to be used in standardized sizes and later grades (purity) to facilitate the exchange of merchandise. The basis for these mediums of exchange was acceptance by the public and such variables as durability and storage. During the late middle ages a variety of paper “IOU's” gained popularity as an exchange medium.

The advantages of paper currency as opposed to carrying around precious metal were slowly recognized through the ages. Subsequently stable governments adopted paper currency and backed the value of the paper with gold reserves. This came to be known as the gold standard. The Bretton Woods accord in July 1944 fixed the dollar to 35 USD per ounce and other currencies to the dollar. In 1971, President Nixon suspended the conversion of paper to gold and allowed the US dollar to 'float' against other currencies.

Since then the foreign exchange market has developed into the largest market in the world with a total daily turnover of approximately 3.2 trillion USD. Traditionally an institutional (inter-bank) market, the popularity of online currency trading offered to the private individual is democratising forex and widening the retail market.

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