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Historical background of forex trading – how it started?

The history of Forex trading may be traced back hundreds of years. Since the Babylonians, several currencies and the need to trade them have existed. 

They are recognized as being the first to employ paper receipts and notes. The assumption was rare, and the massive hypothetical activity that exists now in the market would have been glared upon.

What are the Key things which Result in Forex Trading?

  • Barter System

The barter system, established by Mesopotamia tribes about 6000BC, is the oldest trading means. Products were traded for other interests under the barter system.

Behind that, the system grew, and entities such as spices and salt became a common way of exchange. In the first general format of foreign exchange, crafts would sail to sell the outgrowths. 

This method appears simple, but it is filled with flaws and inconsistencies. For one thing, the things being traded have no fixed value, leading to many one-sided bargains.

  • Coins

In the 7th century BC, when the first coins were made in Lydia (modern-day Turkey). The coins were easier to standardize than other objects that came before them. They did, however, raise several concerns that must be addressed. 

For one thing, carrying huge amounts of currency was difficult and risky. The weight of the coins was frequently used to determine their value. It created a new problem because the importance of the coins fluctuated over time.

  • Paper Money

Paper money was invented in China’s Tang dynasty in the 7th century. It solved a lot of the problems that coins had. It was very easy to fascinate in huge quantities since it was lighter.

When European explorers such as Marco Polo came to the region and returned home, they brought the paper money system. Paper money symbolized how much gold people had in their bank accounts.

  • Gold Coins

Gold coins were supposed as the medium of exchange, but their weight made them unworkable. Click here Margin in forex to get more insights.

After 50 years of utilizing gold as a monetary exchange standard, France, Germany, and the United States adopted it in the 1870s. Until 1914, gold could be traded for set amounts of paper money.

  • Bretton Woods

During World War II, representatives from 44 countries were invoked in Bretton Woods, New Hampshire, in the United States. They decided to establish a new foreign exchange standard. The International Monetary Fund and the World Bank were launched at this summit.

After that, the 44 countries agreed to peg their currencies to the US dollar. The US dollar was then locked to a fixed rate against gold. As a result, the US dollar became the international currency standard.

  • System of Floating Exchange

The value of currencies is no longer reliant on gold or anything of weight due to the 1971 actions. Instead, the floating exchange rate currently determines the importance of these currencies. 

Governments have no control over or influence over this rate. Rather, they are influenced by the foreign exchange market’s supply and demand.

Conclusion

Investors and economic organisations have discovered a new playground in the recent era as commercial enterprises have had to deal with a far more volatile currency environment. 

Central banks and governmental institutions founded the foreign exchange market, but it eventually expanded to encompass a variety of institutions, including the dot com booms and the internet. 

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