The current system of currency trading is relatively new. As such, the Bretton woods Forex trading system came into being after the failure of the gold standard system, post world war 2; this pegged the US Dollar to gold. Eventually, the Bretton Woods system failed to keep the US dollar pegged to gold because of insufficient gold circulation in the American market. And this made President Richard Nixon, at that time, end the Bretton Woods system since gold was not a standard anymore. It ended up letting the US Dollar freely float against other currencies.
The Smithsonian Agreement in December 1971 was a similar system to the Bretton Woods system but with a greater fluctuation band for the currencies. And this pegged a 38$/ ounce of gold hence depreciating the Dollar. Meanwhile, in 1972, Europe tried to move away from its dependency on the US Dollar by creating the European Joint Float. Both the systems of Europe and the US failed because of mistakes very similar to the Bretton Woods accord, and in 1973 they collapsed. Apart from these events, events like the plaza accord and the formation of the Euro have all had a hand in shaping the modern free-floating Forex trading system.
What Is the Forex Market?
The foreign exchange market, where people trade in currencies instead of stocks, is the Forex market. The value of a currency against another is determined here, making it the cornerstone of the world economy. This is the most active market in all of the world, functioning for 5 days a week and an aggressive active market worldwide with 24 hours functionality over the different time zones. As such, the modern Forex market is open for everyone, and this wasn’t always the case before the internet. Most of the Forex market trading was done by large corporations, hedge funds and banks with huge capital.
Main benefits of Currency Trading
Market Size: The sheer size of the market makes it a lucrative trading place with a lot of options. The current size of the market is around $4 trillion and is ever-expanding, with new players entering the field every day.
Good for Beginners: Many trading platforms give simulations for first time traders, which help test their skills before committing to the market
Round the Clock Market: There are no time bars on trading here with the different time zone markets around the world.
Liquidity: This is the most liquid market in the world, making it minimal risk trading.
Volatility: Events like natural disasters, economic dull, new policies and government changes have drastic changes in the market. Hence, because of the highly volatile nature, very high profits can be expected if invested wisely.
Nobody Controls the Market: Due to the huge amount of players in the market, no one entity controls the market, making it free and unpredictable other than factors like policy changes and more.
Low Transactional Fees: Unlike the stock market, the transaction fees on this market is very low, decreasing the invisible excess costs. This is slowly making Forex trading a much more lucrative option than the stock market.
Technology: The ease of access to the Forex market is very high. And being a new marketplace, the progress of technology was embraced here with new software and apps with direct market access and 24-hour real-time trading being the norm.