The Evolution of Foreign Exchange Markets

Long before FOREX or FX existed there was buying, selling and trading. Rice for corn, gold for coal, liquor for tea or bartering fur for tobacco are just a few examples of trade from the beginning. But how could people exchange if they did not have anything to trade? A monetary system was developed, allowing goods that are worth money to be traded. It’s still trading. Instead it is trading goods for other goods, which trade goods for money. What happens when you decide to trade internationally? How can one country’s money compare to others’ worldwide? Today the Foreign Exchange, which does over 4 trillion dollars a day in monetary trading, bases how much a broken-down monetary system is worth. In addition to exchanging trillions daily, our modern day Foreign Exchange Market or FOREX is open 24/5 and is the world’s largest and most liquid market! But it all started with the “Gold Standard.”

The “Gold Standard” is a way to trade internationally for goods and products. Let us say that $20 USD can buy 1 ounce of gold and 200 Yen can buy 1 ounce of gold. With this in mind 200 Yen is equal to $20 USD—a ten-to-one ratio. So, buying a $1000 USD product from the United States the person would have to pay 10,000 Yen.

In today’s world we are working around the clock to keep up with business, especially since the implementation of the Internet and online trading. In the past, investors were drawn to stock options, futures and commodities. Nowadays FOREX is another popular option used for personal investments. The fact that trading accounts can be opened with small investments has further boosted its popularity.

There are five major trading centers associated with the FOREX: New York, London, Singapore, Hong Kong and Tokyo. These big shot trading centers cover most of the time zones in the world and are constantly trading. The most traded currency is the US Dollar.

The US Dollar, the Euro, Japanese Yen and the Great Britain Pound are the most popular traded. By trading the major currencies of the world we can operate more efficiently. In today’s world, operating as fast and as efficient as possible is essential to keep up with the demands.

Years ago, banks and other large financial institutions were the main players in FOREX trading. Conversely, in this electronic age any person can perform online trading with a computer and the Internet. Almost all banks, hedge funds, pensions, and mutual funds are involved in foreign exchange trading. And of course, money can be earned regardless if a currency is gaining or losing—the quintessential market environment for the scalp trader.

The main trading pairs that the FOREX uses are: USD-Yen, Euro-USD and British Pound-USD. The USD is the most traded monetary fund. Therefore, currency is traded with it and then broken down farther.

Imagine trying to trade an IPOD from Japan for a tire in today’s world. On top of things being bought there are billions of dollars used for investment purposes with bonds and stocks. By having the Foreign Exchange Market trading trillions of dollars everyday, for 24 hours a day, our lives and international trading are made easier. On the flipside: the 24-hour trading makes some of us more susceptible to market addiction!