The History of FXThe Breton Woods Agreement was initiated in 1944 in an effort to keep cash from draining out of war-ravaged Europe. Currency movements were limited to 1% against the U.S. Dollar, which was fixed to the price of gold at 35 US Dollars an ounce. The modern era of foreign exchange first emerged in 1971 with the collapse of the Breton Woods Agreement. The U.S. Dollar was no longer convertible into gold and market forces were free to adjust foreign exchange rates, signalling an increase in currency market volatility and trading opportunities.
The collapse in 1973 of the subsequent Smithsonian and European Joint Float agreements signalled the true beginning of the free-floating currency exchange system that drives the markets today. Starting in the 1980’s, computer technology extended the reach of the exchange marketplace. Today, the values of the major world currencies are independent of each other.What is Foreign Exchange Market
Foreign Exchange is a currency market where the trading of one currency against another takes place. It is often referred to as Forex or FX.
The foreign exchange market is the largest most liquid and most influential market in the world. It is a truly 24 hour global market, it trades from 9pm GMT Sunday until 10pm GMT Friday and trades in excess of $1.5 trillion dollars a day, Making it far bigger than the combined total of all the worlds stock exchanges.
Participants in Forex include central banks, corporations, individual investors and speculators, and hedge funds. With the advent of electronic trading platforms, self-directed investors and smaller financial firms now have access to the same liquidity as larger market participants.
Trading, or speculation, makes up 95% of the daily volume. The other 5% of daily volume consists of governments and commercial companies converting one currency into another from buying and selling goods and services.
51% of the market is in spot FX transactions, followed by 32% in currency swap transactions.
Forward outright FX transactions represent another 5% of this daily turnover. Options on inter-bank FX transactions making up another 8%.