When Did Forex Trading Start? A Comprehensive History of the Forex Market
Forex trading has become one of the biggest financial markets in the world, with an average daily turnover of over $5 trillion. It is one of the most traded markets in the world, with businesses, industries, and individuals participating from all corners of the globe.
But when did forex trading start? How did it develop into the market we know today? This article will take a comprehensive look at the history of forex trading, exploring its origins and development over the years.
The Origins of Forex Trading
The history of the forex market dates back to the 19th century. However, the standardization of the currencies exchange regime only occurred after the Second World War, where the currencies were pegged to the US dollar. The Bretton Woods Agreement established the US dollar as the world's reserve currency, with other currencies pegged to it and a fixed exchange rate.
Trading in the forex market at this time was restricted to banks and large financial institutions as it was an over-the-counter market. It was not until the 1990s that it began to open up to individual traders and retail investors as technology improved.
The Development of the Forex Market
With the advent of computer technology in the 1980s and the growth of the internet, forex trading became more accessible to more participants. Forex trading was once exclusive to large banks and institutions that had high net worth because of the prohibitive costs associated with trading.
Theories of currency exchange rates were known even in the 1920s, with Irving Fisher proposing the theory of purchasing power parity. This theory proposed that in the long run, exchange rates will converge to a level that supports equal purchasing power in different countries. PPP continues to be an important concept in forex trading today.
The 1980s also saw the rise of international capital flows. This led to an increase in the demand for forex trading as investors sought to buy and sell different currencies depending on the market conditions.
The Emergence of Electronic Trading Platforms
The introduction of the electronic trading platform in the 1990s revolutionized forex trading. It transformed the market from the traditional over-the-counter dealer model to an electronic market with a transparent pricing structure. The first electronic trading platform was the Reuters Dealing System, launched in 1987.
Other electronic platforms soon followed, including EBS (Electronic Brokerage Service) and Currenex, which provided real-time and transparent pricing, giving individual traders access to the market.
The Growth of Retail Forex Trading
Retail forex trading has become increasingly popular over the years, with the availability of online trading platforms and the ease of access to global forex markets. Many retail brokers offer low deposit requirements, as low as $100, and high leverage ratios, allowing retail traders to participate in the market with funds that would have been out of their reach in the past.
The Future of Forex Trading
As we move forward, the forex market is set to experience more innovation and technological advances as players in the industry continue to find ways to improve the market's efficiency and streamline the trading process.
New players are emerging, as non-bank financial institutions, social trading platforms, and even cryptocurrencies increasingly participate in the forex market.
Forex trading has come a long way since it first started. From being an exclusive club for large financial institutions and banks, forex trading is now open to retail traders and investors from across the globe.
As technology continues to advance and new players enter the market, it's clear that forex trading will continue to be an important part of the global economy. Forex trading provides an opportunity to invest in the value and strength of currencies, giving investors a unique way to diversify their portfolio.