The History and Development of Forex Trading

Michael Fasogbon

Updated: 2 December 2023

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Throughout history, forex trading is one of the financial markets that have seen a massive change.

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As early as the 1990s, the forex market was only for large financial institutions, unlike now that anyone with an internet connection can access the market.

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But where did the currency exchange market start?

The history of the currency market dates back to the middle ages, whereby currency was only traded via international banks.

The modern forex market that’s characterized by high volatility periods, as well as relative stability only, formed itself during the twentieth century.

By the mid-1930s, the British capital, London, became the leading center for forex while the British pound served the currency for trading as well as to keep as the reserve currency.

The pound has the nickname of “cable” because by then, forex was traded only on the telex machines or cable.

Now, after the Second World War, the British economy was destroyed, and the US was the sole country that was unscarred, and hence, the US dollar became the reserve currency used for a plethora of countries.

Furthermore, the USD was pegged to gold at $35 per ounce. As a result, it became the globe’s reserve currency.

Moreover, under a similar agreement was organized the IMF (International Monetary Fund) that are now rendering significant financial support to developing as well as former socialist countries.

In executing its goals, the IMF uses instruments like reserve trenches that allow members to draw their own reserve asset quota during payment, stand-by arrangements as well as Credit trenches drawings.

However, the most significant landmark in financial markets’ history was at the end of the 70s, when the free-floating of the currencies was officially mandated.

It was the basis of the formation of foreign exchange in its contemporary understanding.

Therefore, it means that the currency can easily be traded by anybody as well as its value is merely a function of the current supply as well as demand forces in the market. Moreover, there’re no particular intervention points to be observed.

Undoubtedly, forex trading has gone through a series of growth since the currencies were let to float freely against each other.

To get a clear picture of this massive growth in forex, in 1977, daily forex turnover was $5 billion, and ten years later, the number had increased to $600 billion.

As if that’s not enough, in 1992, the daily turnover reached a landmark at $1 trillion, which later stabilized at $1.5 trillion by 2000. By the year 2010, the daily turnover was at around $5 trillion.

But what were the main factors that influenced this spectacular growth?

A lot of factors engineered the growth with a major role belonging to the high volatility of the currency rates, increasing the mutual influence of various economies on interest rates that are established by central banks that affect currency exchange rates.

Also, there’s the intense competition on the commodity markets as well as the amalgamation of corporations of various countries.

There’s also the technological revolution in currency trading that led to the development of the automated dealing systems as well as transition o currency trading via the internet.

Furthermore, simultaneously matching systems connect traders across the globe electronically that duplicates the broker’s market.

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Generally, a lot of folks are currently making a lot of profits from the forex market to the extent that others are now considering full-time forex trading.

All this has been made possible as a result of advancements in technology, computer software as well as telecommunications that, together with an improved experience, have increased sophistication levels of traders.

In return, the trading volume has also gone up by a mile and still on a positive projectile.

The History and Development of Forex Trading

Michael Fasogbon

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