Over the last three decades the interactions of the Forex market have been expanding and developing to become the robust, global market it is today. The foreign exchange market, as it now stands originated in 1973. However, money or currency has been in our society in one form or another since the time of the ancient Pharaohs. Middle Eastern moneychangers were the first currency dealers who exchanged coins from one country to another. With the introduction of paper bills a transferable payment of funds became viable, making transactions on this primitive foreign exchange market much easier for merchants and traders. International trading and Forex ( FX trading ) encouraged the growth and strengthening of economies and brought many benefits to the countries involved.
The establishment of the current foreign exchange market underwent many modifications; the first major changes came in 1944 with the Bretton Woods Accord, towards the end of World War II. The United States, Great Britain and France met at Bretton Woods, to design a new global economic order. The U.S. dollar became the standard from of currency that currency dealers used in order to determine the value of other currencies on the foreign exchange market. Prior to this the British pound, was the major currency by which most currencies were compared to on the Forex market. At this time much of Europe was in disarray whilst the US remained unscathed by the war. The Bretton Woods Accord aimed to create a stable FX trading environment by which global economies could restore themselves in the hope of stabilizing the global economic situation.
Main Dates
1930 In the Swiss city named Basel the Bank of the International payments has been created. The purpose of creation was financial support of the young independent states and the states temporarily testing deficiency of the payment balance.
1944 Bratton Wood conference has been conducted in the USA. It has been counted as the termination of the American-British rivalry. There were two largest figures at conference: John Maynard Keynes (England) and Harry Deckster Whyte (USA). They manage to create and accept the new order of world financial system development in current conditions. Main notice of Bratton - Wood conference. " The international currency fund becomes the major institute supervising the international financial and economic attitudes; " The currencies playing a role of the international reserves (dollar and de facto pound sterling) are proclaimed; The adjustable parities of currencies adhered to US dollar (the deviation 1 % is possible) established; the dollar is adhered to gold (ounce of gold - $35); " Members of IMF have the right to change parities only with the consent of IMF; " On transitional end all currencies should become convertible; for observance of this principle all governments undertake to store the international reserves, and if necessary - to make interventions on currency markets. " Members of IMF do a payment by currency and gold.
1947 The program of restoration of the European economy has been accepted in the USA for the suspension of communism approach. The USA state secretary Marshall depicts the plan in his report. According to following plan the economy of Europe will be improved up to that level when it can independently support the military potential. One of the problems was satisfying of "dollar famine". If in 1949 dollar obligations of the USA to Europe made 3.1 billion they have reached 10.1 billion dollars.
1958 The majority of the European countries declare free convertibility of the currencies.
1964 Japan has declared convertibility of its own currency. After the announcement of convertibility of the basic currencies it became clear, that the USA cannot stay able to support the price of $35 for ounce of gold anymore. Dollar inflation has made threat for the USA. Kennedy administration had been accepted a number of incorrect actions - the tax to the percentage differential raising costs of foreign borrowers, and the program of voluntary restriction of foreign credits is entered. The tax and restrictions were an incitement to occurrence of the new market - the market of Eurodollars.
1967 There was a devaluation of English pound that has stroked last blow on illusory stability of Bretton Wood system. In 60-s deficiency of the balance of payments in the USA leads to reduction of gold reserves with 18 up to 11 billion dollars. There is an increase of external duties of the USA simultaneously to it.
1970 Interest rates in the USA that generate the strongest crisis of dollar are sharply reduced. There was a massive capital outflow from the USA to Europe where the level of interest rates was higher.
May 1971 Germany and Holland declare temporary free fluctuations of the currency rates.
August 1971 Growth of deficiency of the paymen balance of the USA has compelled the president Richard Nickson to suspend convertibility of dollars in gold.
December 1971 The last attempt to keep Bretton - Wood system has been undertaken at the meeting in Smithsonian institute in Washington. The interval of deviations of exchange rates from parities has been increased up to 4.5 %. To keep borders of an interval it was very uneasy. And later Bundes Bank has lead intervention for the sum of 5 billion dollars. It was the enormous sum at that time, but it has not brought the success. Currency stock exchanges in Europe and in Japan should be closed temporarily and the USA have declared devaluation of dollar on 10 %. The developed countries have stopped to support the fixed parities and were started up in currency navigation.
1973-1974 The USA had cancelled stage by stage with the tax to percentage differential and the program of voluntary restriction of foreign credits. The Bratton-Wood system had stopped its existence. Last years of Bretton - Wood system existence currency traders extracted big speculative profit during the periods following the termination of interventions of the central banks. After the refusal of the rates the opportunity of such profit extraction became strongly limited. Many banks have incurred large losses, and two known as "Bankhaus Hershtadt " in Colon and " Franklyn National " in New York - even have gone bankrupt because of unsuccessful speculative operations.
1976 The Jamaican conference (Kingston) has taken place. The representatives of major world states have generated new principles of World currency system formation. The states have refused use of gold as means of a covering of deficiency at the international payments. The interstate organizations regulating currency attitudes, convertibility of currencies act as basic elements of new system. National currencies of the states act as payment means. Commercial banks act as the main mechanism by means of which the international currency transactions are carried out.
1978 European Voluntary System (EVS) is created. Core of EVS is the grid of cross-countries - exchange rates with the central and boundary values of exchange rates. Basically EVS reminds Bretton Woods. If the cross-country-rate comes nearer to the border, both parties are obliged to carry the intervention out. Deutch Mark is a key currency of EVS.
1985 Gradually ecu becomes not accounting, but the physical tool. Traveler's cheques denominated in ecu and credit cards are issued, banks open deposits in ecu.
January 1999 There was a new European currency called Euro which replaced ECU by its self. 11 European states have fixed exchange rates in relation to Euro. The European central bank started to operate a currency policy of the European currency union (EMU). The fixed exchange rates of participants of the European currency union to Euro: EUR/LUF 40.3399 Luxembourg franc EUR/BEF 40.3399 The Belgian franc EUR/IEP 0.787564 Irish pound EUR/FIM 5.94573 The Finnish mark EUR/PTE 200.482 The Portuguese escudo EUR/ESP 166.386 Spanish peseta EUR/ITL 1936.27 Italian lira EUR/FRF 6.55957 The French franc EUR/DEM 1.95583 Deutch mark EUR/NLG 2.20371 The Dutch gulden EUR/ATS 13.7603 The Austrian shilling
As against other financial markets currency market is characterized by a great volume of the tenders, the lowest cost of spent transactions, and the fastest movement of money resources. It is the unique world market working 24 hours a day. Its liquidity has increased up to 1 billion US dollars a day. Now operations at the currency market are the basic source of incomes of world conducting banks, such as: Chase Manhattan Bank, Barclays Bank, Swiss Bank Corporation and so on. Soros's gamble on sale of English pound against DM which has brought billion dollars of net profit within 2 weeks became classical, having made Soros famous and having his charities begun. The opportunity of work in the financial markets of Asia, Europe and America became accessible, due to their association in one global communication network. 24 hour access on the currency market allows to open and close positions during optimum time and under the best price. Big profit can be extracted at rather small deposit during a short time interval. One phone call or simple pressing a key of "mouse" (at carrying out of operations with the help of our information-trading system) is enough to open position.
FOREX or The FOReign EXchange rate market is an international market where various currency exchange transactions take place; this is in the shape of simultaneously buying one currency and selling another. The most commonly traded currencies are referred to as “Majors”; over 85% of daily transactions on Forex trading involve the Majors. These seven currencies are the US Currency (Dollar, USD), Japanese Yen (JPY), Euro (EUR), British Pound (GBY), Swiss Franc (CHF), Canadian Dollar (CAD) and Australian Dollar (AUD). The Forex system in operation today was established in the 1970s when free currency exchange rates were introduced, this period also saw the US Dollar overtake the British Pound as the benchmark currency. Prior to this and in particular during World War II, exchange rate remained more stable.
Forex trading in simplest terms is the buying of one currency and the selling of another. Forex trading, also referred to, as “FX” is open to corporations, small businesses, commercial banks, investment funds and private individuals, it is the largest financial market in the world averaging a daily turnover of over $1 trillion dollars, making it a diverse and exciting market. It is a 24-hour market enabling it to accommodate constant changing world currency exchange rates . According to New York time, trading begins at 2.15pm on Sunday in Sydney and Singapore and progresses through to Tokyo at 7pm, London at 2am and reaches New York at 8am. This leaves investors free to respond to global political, economic and social events when they take place, day or night.
Forex and World Currency Exchange Rates
In this market of currency exchange , the value of major currencies change continually, investors hope to make a profit from the purchase of stronger currencies. If an investor has bought a currency that appreciates in value, a profit will be earned by ‘closing the position'. Closing the position simply refers to the selling back of the appreciated currency in order to collect your profit. These currencies are traded in pairs for example US Dollar/ Japanese Yen (USD/JPY) or EURO/ British Pound (EUR/GBP), trading in pair's values one currency against another, establishing a rate of worth for a global exchange rate. Currency can hold no value unless it has something with which to be compared.
Reading these trade quotes is simplified by remembering the currency listed first is the base currency and the base currency exchange rate is always equal to one. The ‘base' currency is the main currency that is used to evaluate the worth of foreign currency it is the basis for the transaction. Taking the US currency as the center of the Forex trading market where 1USD is equal to 109.21 Japanese Yen (1USD/109.21JPY) this situates the US currency as the base, as the currency exchange quote goes up, the dollar appreciates in value and the Japanese Yen depreciates or weakens. So if foreign currency exchange rates change the quote to 1USD/111.21JPY this would imply the US currency is getting stronger and will earn the investor a larger profit. For the majority of exchange rate the US currency is the base, with the exception of the Euro, British pound and Australian dollar.
The Benefits of Forex Trading
The mechanisms of the currency exchange rates market are similar to the workings of other markets; it has no central location like the stock market, transactions occur over electronic and telephone networks. World currency exchange rates do not only fluctuate during regular office hours, Forex trading can be accessed 24 hours a day as currency exchange rate demands. Forex has superior liquidity to other markets, implying any dealings can be readily converted into accessible hard cash. It is fifty times larger than any similarly structured market ensuring there are always brokers and investors pursuing business. Currency exchange is an objective market; because of its sheer volume manipulation of foreign currency exchange rates would prove very difficult, involving colossal sums of money.
The start up capital required to begin trading on world currency exchange rates is relatively small in comparison to capital required for similar marketplaces. Margin trading, that is trading with a borrowed capital is a frequent feature of Forex trading ; this is similar to a performance bond or good faith deposit. This allows for smaller and independent brokers to deal equally on foreign currency exchange rates. The fees involved in the various transactions are also kept to a minimum; only the difference between buying and selling prices is levied. As trading on currency exchange rate takes place in pairs, there is the potential for investors to make a profit on both rising and falling markets. An environment has been created making it possible to buy and sell currencies without any limitations. Overall, Forex investments provide decent returns; it is a global market, easily accessible with its potentials for profit widely being revealed
