The History of Forex Trading

1. The History of Forex Trading    A Brief Introduction  Knowing the history and nuisances of forex trading can give some  valuable insights to traders and those interested in starting their  training journey.  Although in itself Forex is a newer trend, especially as it is so  focused on technology to be able to execute, the act of trading for  monetary gain is far from being a new concept.  The Start to it All  Now, the start to barter and trade has been around for  thousands…that’s right…thousands of years. This back-dates to the  years far beyond B.C.; if anyone had something you didn’t, but had  something to offer in return at a value that could be greater to the  recipient a trade could be made.  The first Forex market was established in Amsterdam about 500 years  ago. This foundation created the possibility to freely trade  currencies whilst still having a stabilised currency exchange rate.  Granted, at the time trading was not close to what it is today, but  rather was mostly with England and Holland. From this starting point  in Amsterdam, Forex trading was able to take a foothold throughout the  entire world. 

2. From here, fast forward to the 1800s when the currency began to be  backed by gold, so some weight was able to be held against money  rather than the long lost system of trading simply good for good or  good for service. The establishment of the gold standard was one of  the biggest stepping stones to modern trade for Forex and other forms  of trading.  By World War One control over international trade took a fall and the  war itself caused many countries to abandon the gold standard. This  meant by 1913 foreign exchange holdings increased by 10.8% and  holdings of gold increased by only 6.3%, marking the importance of the  emerging Forex market.  One more quick jump and we can find ourselves in the early 1900s where  the weight of gold against currency fell some, so countries began  trading with and against one another and converting currencies  received to gold. By 1913, the number of Forex trading firms rose from  3 to 71 within only 10 years in London. 50% of all Forex transactions  were made in Pound Sterling.    Through the Decades  After the start of the 1900s, currency trading continued to evolve and  progress. This includes multiple different trade systems being  established as the value of currencies shifted.  After World War Two, there was a need for some drastic change within  the world of trade and currency. This ultimately led to the Bretton  Woods System. As this was developed it then made it possible for any  currency to be pegged against the US dollar.  The Bretton Woods System- The 1970s  A hop, skip, and a quick jump forward, we arrive in the 1970s. At this  time, at least in the United States, the concept of free-floating  currencies took a foothold in the market. This allowed for the modern  Forex trading system to develop.  The Bretton Woods system was created in the ‘70s and with that, a  certain amount of rigidity in foreign exchanges, and the gold-backed  US dollar began to give way to its own challenges. The Bretton Woods  System held onto the gold-backed system of value in a limited form. 

3. USD would then remain on the gold dollar. This system also set that  major world currencies would be against the USD at a rate of 35 USD  per one ounce of gold.  USD was used as the standard because during World War 2, many  countries fell victim to counterfeit. Prior to USD reigning supreme,  the GBP was what was used as a standard measure of value.  Unfortunately though, Great Britain ended up taking a massive hit from  counterfeit currency by the Nazi counterfeiting.  This system lasted for more than 25 years. The Bretton Woods System  then allowed nations to trade with greater confidence and stability.  Additional benefits to this system included forming the International  Monetary Fund, setting fixed exchange rates thus allowing currencies  to fluctuate within a 1% range, and USD was then recognized as the  world’s primary reserve currency.  Scandals in the ’90s  Ah, welcome to the ‘90s. Specifically, in 1996 the first online  brokers entered the stage for trade to begin in a new way. Now, the  stock market existed long before this, so we already know that  currency trading already did exist. An issue here was that before the  large technology boom trading was not a simple, quick action. But,  with the introduction of computers, trading could then be done  instantly. This did not come without some initial hiccups though.  One scandal was in 1995 involving a man that caused the collapse of  the British bank Barings. He was based in Singapore and was making  unauthorized speculative trades on the Japanese stock prices and  interest rates. At this time the Kobe earthquake struck and caused the  Asian markets to crash. The bank ended up losing more than $1 billion  USD. Barings was forced to declare insolvency and the man was  eventually jailed for 4 years for fraud and forgery in Singapore.  Another scandal with Forex was a few years before around 1992. A  Malaysian bank landed itself in hot water and caused a loss to the  tune of 30 Billion RM. At the time, the bank involved was supposed to  be one of the most sophisticated in the world and attracted some major  traders. There were highly abnormal trades happening at about $1 to $5  billion USD daily…even the bank of Japan did not trade at these  levels. This was because central banks avoid high-level trading to  protect its own internal currency. The Malaysian bank ended up 

4. becoming a profit center for the government using the country’s  reserves to speculate in the currency market.  Some Big Swings  Through any investment type’s history, there are gains and losses and  they follow a few different trends. Through the history of Forex,  there have been a few monumental swings that have forever impacted the  market.  2015 found a massive swing downward to hit the market. This happened  in regards to some changes with Swiss monetary policy. Before this  swing happened the CHF Franc held what was considered a stable and  favorable value. Within three days of this change, the CHF France took  a drop in value to the tune of about 41%. Clients ended seeing massive  losses during this transition.  Another large swing occurred in 1998 and impacted those that borrowed  yen against Russian bonds. This ended up causing a heavy drop in  USD/JPY accounts to the tune of 2 yen a day for about a week. This  occurred because during those bond investments, Russia ended up  defaulting and liquidating assets.  Where We are Today  Forex today is a full digital trading experience. This market, unlike  some other trading markets, is available 24 hours a day as it is  spread through multiple time zones.  Forex has moved far beyond the Amsterdam phase of trading. Today there  are four major types of trading pairs that can be done. Major pairs  make up about 80% of the total market. There are also minor pairs,  exotic pairs, and regional pairs.  It can be noted that exotic pairs and regional pairs tend to be more  volatile as they are smaller economies and emerging economies that are  often involved within them.  Different Forex Markets  Not only has Forex itself progressed in leaps and bounds, but it has  also evolved into multiple market types. There are three different  ways that you are able to trade. These include: 

5. Spot forex market: the physical exchange of a currency pair,  which takes place at the exact point the trade is settled or  within a short period of time. Derivatives based on the spot  forex market are offered over-the-counter by dealers like IG.  Forward forex market: There is an agreement to buy or sell a set  amount of a currency at a specified price, and to be settled at a  set date in the future or within a range of future dates  Futures forex market: an exchange-traded agreement to buy or sell  a set amount of a given currency at a set price and date in the  future.  ● ● ●     Forex During the Pandemic  History has shown pandemics have happened, can happen, and more than  likely will continue as is the nature of viruses and the other small  things we can’t see. This means as with the rest of the world and  other markets, pandemics (like COVID-19) have an impact on the Forex  market as well.  Using COVID-19 as an example, even in late 2020 this virus made a huge  impact on all money markets and will continue to do so for a while.  Globally, unemployment has been a major factor in how the money  markets have been impacted. As people grow insecure in regards to how  much money they will have and ensuring they have necessities…investing  can fall on the leeway as more of a luxury or desire rather than an  absolute must. This then causes a drop seen across money markets as  corporate debt rises and the desire for some currencies (like USD) to  take a drop as a result.  Although an initial hit came across the board, ​ Forex trading software  has recovered and maintained very well while the rest of the world has  its varying impacts. Throughout Africa, Eastern Europe, and Asia  during the pandemic new accounts here took up 60% of the nearly  220,000 new accounts opened by the end of Summer 2020. In addition to  this, total trade volume also took a steep climb to the tune of about  300%.  Despite how well Forex has been able to perform against some of the  other market aspects, the volatility and nature of why Forex improved  so much do not mean that it will continue to grow at that rate. The 

6. nature of growth in the financial market is all about stability and  security…if people grow less secure.  A Peek into the Future  The future is largely uncertain for many, but it can be predicted that  Forex has no sure sign of stopping or slowing down. The way it  currently sits, over $5-trillion is traded on the Forex market daily.  That’s right…DAILY.  The Forex market is also decentralised, so with that, it means that  this is in no control of a central government or sole body. Granted,  within the market, there are four main banks that contribute to forex;  those being Citi, JPMorgan, UBS, and Deutsche Bank.  Some Famous Forex Traders  Going over the history of forex cannot be without mentioning some  historic traders as well.  George Soros  George established Soros Fund Management in 1970. The firm has  reportedly gone on to generate more than $40 billion in profits over  the last fifty years.   Soros rose to international fame in 1992 as the trader who broke the  Bank of England, netting a profit of $1 billion after short-selling a  reported $10 billion in British pound sterling. In 1992, the U.K.  withdrew the currency from the European Exchange Rate Mechanism after  failing to maintain the required trading band due to Soros’ trade.  This event earned the name Black Wednesday. This trade is considered  to be the highlight of his career and gave credibility to his title of  one of the top traders of all time. Soros is in the ranks as one of  the 200 wealthiest individuals in the world.  Stanley Druckenmiller  Druckenmiller then successfully managed money for George Soros and was  the lead portfolio manager for the Quantum Fund between 1989 and 2000.  Druckenmiller also worked with Soros on theBank of England trade,  which launched his rise to stardom. He was also featured in the  best-selling book, The New Market Wizards. 

7. Andy Krieger  Krieger joined Banker’s Trust in 1986 after leaving a position at  Salomon Brothers. Krieger immediately built himself a reputation as a  successful trader. Due to this, Andy had his capital limit increased  with the company to $700 million. The standard for the company was a  $50 million limit. This bankroll put him in a perfect position to  profit from the Oct. 19, 1987 crash.   Krieger focused on the New Zealand dollar because he believed it was  vulnerable to short selling as part of a worldwide panic in financial  assets. His trading strategies allowed for a net of about $300 million  in profits for Banker’s Trust.  Bill Lipschutz  In 1982, while working on his MBA, Lipschutz began working for Salomon  Brothers and ended up in the newer branch that focused on foreign  exchange. By 1985, Bill was able to successfully cause the company to  earn $300 million on a yearly basis. This type of success was exactly  why from the years 1984 up until 1990, Bill was the company’s main  Forex trader. After that, Bill moved onward and in 1995 he became the  Director of Portfolio Management for Hathersage Capital Management.  Bruce Kovner  Kovner was a fairly experienced investor beyond just Forex. A notable  point is him being able to bank around $20,000 from soybean future  contracts. This event led to him then becoming established as a trader  and joining the Commodities Corporation and booking millions as a  result.  In 1983 he also ended up founding Caxton Alternative Management. This  hedge fund system was then able to be worth more than $12 billion in  assets. This success ended up allowing Bruce to be one of the largest  Forex players up until 2011 when he retired.  To Continue Onward…  Forex does not appear to be shifting in any negative direction in  terms of popularity. Skilled investors and market shifts will forever 

8. impact the investing game. Who knows, maybe if you follow some key  steps as an investor you can find yourself among some top ranks.    Original Source: ​ https://kemistri.co/the-history-of-forex-trading/