The history of forex starts with the creation of the gold standard monetary system created in 1875.
The premise of the gold standard is that governments back their currencies with gold. The difference in price of an ounce of gold between two currencies is what led to the very first exchange rates. The gold standard crumbled after World War I due to the substantial political pressures of the time.
During the Second World War, the Bretton Woods System came into effect to replace the then defunct gold standard. In 1944, 700 Allied representatives met in Bretton Woods, New Hampshire to determine a new system of international money management. Bretton Woods replaced the gold standard with the United States dollar and created three international agencies to oversee the new method of fixed exchange rates of which The International Monetary Fund (IMF) is the most well known. Subsequently, the United States currency became the only currency in the world backed by gold. When United States gold reserves became too low for the U.S. Treasury to continue to back, the Bretton Woods System came to an end.
Since the collapse of Bretton Woods, members of the International Monetary Fund use what is called a floating currency exchange. Members are free to choose any exchange system they like provided it is not pegged to the price of gold.
Forex Trading Summary
Forex trading has become increasingly popular with the rise of global networking. For one thing, the market never sleeps. Traders can trade any currency at almost anytime. You could go long or short with deep liquidity and considerable leverage meaning even the smallest market moves could produce big results. There are low trading costs, and basically anyone with an internet connection can get in the game. The forex market like all markets is volatile, but understanding the basics will bring you closer to reaping the benefits this thriving market has to offer.
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