Over the past few years the Forex market has gained popularity amongst retail traders and investors, this is due to the impressive promotional efforts by Forex brokers and a continuous supply and demand model.
Looking at the past
Ancient times
Currency exchange involved changing one currency for another and taking a small commission. Money changers, Goldsmiths and Silversmiths were the primary traders.
During the 15th century, an increase in trade and demand in the textile industry led to the opening of banks in foreign countries so that they could facilitate exchanges.
18th century
In the early 18th century, Amsterdam established a stable Forex market.
1880 was the beginning of the modern foreign exchange as J.M. do Espírito Santo de Silva was given permission to involve in the foreign exchange market.
1900-1950
In 1902 two London foreign exchange brokers began operating and majority of exchanges were conducted using the British Pound.
By 1924 there were roughly 40 foreign exchange firms.
In 1944 the Bretton Woods Agreement was introduced in order to prevent money from fleeing across nations. Countries in the agreement were to retain the value of their currency within a small range against the US Dollar and the rate of gold.
1950-2000
Later in 1971, U.S. President Richard Nixon ended the Bretton Woods Agreement.
During 1972 and 1973 the Forex markets remain closed due to the ineffectiveness of the Agreement, this brought an end to the state control exchange, free flowing rates and independent markets were enforced.
During 1981 and 1982, the Chinese central bank allowed a handful of firms to trade in the Forex market and the first currency pair was traded by US retail customers.
This was the beginning of the forex market as prices became more volatile and floated daily with high volumes and speed. In the 1980s the amount of transactions in the forex market rose to $80 billion a day.
Today
The forex market has been rapidly growing ever since and today approximately $5.2 trillion is transacted per day.
One of the major contributors to the rapid growth in the forex market was the development of the Eurodollar market, this later expanded when the liquidity providers and forex brokers stepped in.
Interesting facts
Common pairs As per the Triennial Survey, the most commonly traded currency pairs are EURUSD (23.0%), USDJPY (17.7%) and GBPUSD (9.2%).
Popular currency The US Dollar is involved in over 85% of trades followed by the Euro (30%), Japanese Yen (21%) and the British Pound (13%).
Major pairs Majority of the market movement happens in these major pairs: EURUSD, USDJPY, GBPUSD, AUDUSD, NZDUSD, USDCHF and USDCAD.
Risk aversion The phenomenon of ‘Risk Aversion’ means that when the market is facing high risk or extreme conditions, traders move their investments into less risky assets.
Bank shares Over 68% of trades in the forex market are executed by banks, Deutsche Bank is the largest individual player with a shares upward of 14%.
Largest participant The UK is the biggest participant in the forex market with a shares upward of 36%.
