NOV 26: Global Expansion and Itís Reaches within the Forex Market

by David Jenyns on November 26, 2006

The foreign market originated in 1973 and more than three decades later, the forex market has been expanding and developing into the robust worldwide market it is today. Even so, currency or money has always been in our society, in one form or another, since the ancient time of the Pharaohs. The first currency dealers started in the Middle East, where these ďmoneychangersĒ exchanged coins from one country to another. When paper bills were introduced as a transferable monetary resource, the transactions became easier for all the traders. The strengthening and development of economies were strongly encouraged by forex and the international trading, bringing many benefits to all the countries involved.

In order to establish the current forex market, several modifications had to be made. The first of the major changes occurred towards the end of World War II with the Bretton Woods Accord in 1944. Three great countries, the United States, France and Great Britain gathered together at the Bretton Woods to organize a new worldwide economical order. This is when the U.S. dollar, or USD, became the monetary standard form of currency that dealers would use when determining the values of other currencies on the forex market. Before the U.S. dollar became the standard currency, the British pound was the main currency that was used to compare other currencies on the forex market. During this time, nearly half of Europe was in disarray while the United States remained unharmed by WWII. In hopes to create a more stable foreign exchange trading environment which would help restore the worldwide economies and stabilize the international economic state of affairs, the Bretton Woods Accord was established.

While the Bretton Woods Accord survived until 1971, a new agreement soon followed in the December of that year, entitled the Smithsonian Agreement. Although the Smithsonian Agreement was quite similar to the Bretton Woods Accord, it also allowed for additional fluctuation within the forum of the foreign exchange market. As no new agreements were made, this was replace with the current free floating system, allowing the governments in forex trading to either peg or semi-peg their currencies or allow the currencies to simply freely float. The free floating system became officially mandated in 1978. Currently, all major currencies move independently from the other currencies implementing the services of forex dealers. Because there are no limitations on currency dealers and investors who want to trade currencies in an open and free foreign exchange market, there has been an inflow of speculation by brokerage houses, independent broker dealers, future trading brokers, hedge funds, banks as well as individuals.

The forex market is driven by the enormous scope for profit potential among the currency dealers, along with the supply and demand. The free floating system is more practical for todayís forex market which undergoes a change in the currency rate approximately every 4.8 seconds. After loosely evolving from a connection of financial centers to one integrated market, the foreign exchange market is now playing an exceptional role in a countryís economy. The forex market has expanded worldwide, reflecting the constant growth of international trades. When considering the size of the forex market, itís important to understand that any transactions made, whether itís with a future trading broker or an independent broker, will ultimately lead to more transactions. This is mostly due to the brokerage establishments as they readjust their positions whether to manage or off set their risks.

Todayís foreign exchange market is a truly worldwide, 24 hour a day trading zone, with most of the currency trading amidst the currency dealers in London, New York and Japan. The only time that currencies stop trading is on Friday when Japan closes its business and then there is a one day window before Europe steps in on Monday morning to open for business. Companies that sell and buy foreign currencies as part of their business like independent brokers and currency dealers, only make up a small percentage of forex trading. The majority of forex trading comes from banks, investment companies and brokerages. As more currency traders discover the foreign exchange markets potential for earning and raising capital, the market continues to develop and grow steadily. Forex reaches a daily turnover of at least 30 times more than any other U.S. market.

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