FOREX 5000

The modern Foreign Currency market (Forex) was established around 1973. The Bretton-Woods Accord of 1944,  was established to stabilize the global economy after World War II. It is generally accepted as the original beginning of the foreign exchange market. It created the concept of trading currencies from around the world against each other. Currencies from around the World were fixed to the U.S. dollar, which in turn was fixed to gold prices in hopes of bringing stability to global Forex events. Currencies were allowed to fluctuate around that value but only within a narrow trading range.

Central banks agreed to intervene in the event that their country’s currency moved or threatened to move outside that trading range. If the fixed value of a country’s currency shifted outside that trading range, that country had the right under the articles of the agreement to declare that a fundamental imbalance is in existence. As a result of this fundamental imbalance, it created a revaluation or devaluation of the country’s currency.

In 1971, the accord finally failed however, it did manage to stabilize major economies of the world, including those of America, Europe, and Asia.

In late 1971 and 1972, two more attempts were made to establish free-floating currencies against the U.S. dollar: the Smithsonian Agreement and and the European Joint Float. To “float” a currency simply means to create a policy by which a strong economic currency is use, such as the U.S. dollar (USD), which in turn is anchored to the price of gold as a benchmark (also know as the gold standard) to bring stability to a volatile global economic situation. All other weaker economic currencies are then fixed against the USD and allowed to fluctuate, or float, no more than 1 percent on either side of the fixed rate. If the fixed rate moved more than 1 percent, the central bank of that country was required to intervene in the market until the exchange rate was brought back to within the 1 percent band.

In July 1978, the European Monetary System was created to counter its dependence on the USD. But by 1993, it was clear that this European Monetary System had failed. Shortly thereafter, retail currency trading opportunities as we know them today started to be enjoyed by smaller investors willing to take similar risks as that of banks and large financial institutions.

Prior to 1994, the Forex retail interbank market for small individual speculative investors or traders was not available. A speculative investor, or speculative trader, is one who looks to make a profit on price movement in with the average minimum transaction size of $1,000,000.00; smaller traders were all but excluded from participation in this market.

Then in the late 1990’s retail market maker brokers (companies that facilitate the trades for speculative traders) were allowed to break up the large interbank units and offered individual traders the opportunity to participate in the Forex market as we know it today.

The Smithsonian Agreement and the European Joint Float agreement similar to the Bretton-Woods Accord but allowed a greater range of fluctuation in the currency values and widened the band in which currencies were allowed to trade.