Why about history?
Almost everyone made a currency exchange at one point or another, for example before traveling aboard. Of course, depending on dollar value, every time you’re getting different amount of foreign currency. Who is profiting from that? The banks gain on every such transaction, since depending on currency you’re buying, they are charging a few additional cents above market value of foreign currency, and keep it as their profit. As an individual buyer, you will never be able to buy currency at the price it’s being listed on global markets. Bank is buying currency at certain price, in order to re-sell it to it’s clients with small markup. Being a forex investor, you have access to exactly that prices. You will be buying the currency, and once it’s value rises, you will sell it for profit.
Understanding forex might seem complicated, but in reality it’s very simple process. However, to fully understand currency trading, you should have at least basic understanding of history of changes on currency market. Knowing certain historical facts, it will be easier to „swallow” forex ideas. Those basic informations are: evolution of currencies, gold standard and history of US dollar. I will try to show evolution of currency market during past century and explain how it became such a thrilling „marketplace” of current century.
Up until WW2 gold standard was commonly used in international economic system, even if paper money replaced gold as a currency of international trade. Gold standard meant that each government guaranteed that value of all paper money of it’s country was covered in gold. That system meant that each country’s available amount in circulation, as well as supply of new money, was limited to physical amount of gold stored in that country’s reserves. This is huge minus for economy. On the other hand, it ensured relative stability of value, since currency exchange was guaranteed by government and was reflected by the amount of gold the country possessed. That system was functioning in international economic system since 1876, during WW1, up until second World War. Yes, dear reader, even 70 years ago, economy had solid basis. It was impossible to create money out of thin air or unthinkable public debts. Changes have been made on famous, and in perspective very important, conference in Bretton Woods.
Why the conference happened? The gold standard had one main disadvantage – Increase of import in single country caused it’s gold reserves to deplete (As mentioned earlier, those gold reserves were a guarantee of that country currency’s stability). It decreased the supply of currency, and as a result, made it more desirable. It increased interest rates, which reduced the currency availability even further. This caused economies to stagnate, which results in recessions. This created situations where economies were in constant swings – when the reserves reached „bottom” the country’s currency was so cheap that it encouraged other countries to invest there, which let country reinstate it’s gold stockpiles – up until another crisis. World War I temporarily disabled free flow, but underlying weakness of such system had to be fixed, and it got – During 1944 Bretton Woods conference.
It was agreed then, that every currency in the world will get connected with US dollar, and only dollar will remain connected with gold, at exchange rate of 35 dollars per ounce. Other agreements made had a purpose to create stable monetary system for every involved country’s currency, by preventing violent swings of inter-currency exchange rates. Participating countries agreed to keep their currencies value against dollar relatively stable, and by exchange, against gold. As a result, dollar became the world’s most important currency, and economic domination „moved” from Europe to USA. Even Euro can’t overtake the world’s primary currency role.
After the conference, countries could no longer devaluate their currencies to profit from foreign trade. Exchange rates agreed on in Bretton Woods quickly became obsolete, since during big rebuild after WW2 in 1950’s, there was a huge number of currency transactions and big capital movements between countries. This system lasted until 1971, when president Nixon ultimately stopped exchange of dollar for gold. During following two years it was forces of supply and demand that overtook the exchange rates of most industrialized countries’ currencies.
70s is a period of agreeing on liquidity, speed and prices on inter-currency market. 80S, with their computer and technology advancements, made the flow faster and easier. This development lasts even today, and made forex daily trading volume reach astronomical values – around 4 billion dollars daily.
As I mentioned earlier, possibility to invest on forex by „normal people” opened only a few years ago. Internet brokers made it so easy that it’s almost the same as buying something online. Of course, just like stock brokers, forex brokers offer varied level of fees and different trading platforms. Before you decide to deposit money at any broker, you should spend some time and learn as much as possible about forex. Best way is to open free training account with virtual money that are offered by most good forex brokers. I’ll talk about it a bit later, for now the most important thing you should know is that even if there are literally hundreds of companies that will let you invest in forex, it’s much better to use one of few biggest ones, the industry leaders, which guarantees biggest reliability and security of our money. You can find those best brokers in ranking.
If you tried to learn forex before you reached this page, then you surely noticed that the amount of information available is simply overwhelming, which might confuse beginner investors and make them ultimately shy away from it, walking away thinking that it is too hard for them. There’s nothing more away from truth than that – hundreds of „normal people” like you and me are investing and earning big money on forex. The purpose of this website is not simply giving you a one best broker company, but to present you as much information as it is possible about forex itself – opportunities and threats, explaining the investing rules, and presenting the few most reliable platforms. The choice is yours. You should analyze all of them and pick the one broker that will suit you the most.
If you are interested in making money from home full-time, or even simply just making some cash on the side, to supplement your 9-5 income, the forex seems to be perfect solution for you. The income all depends on your engagement. Professional attitude to investment will give you huge profit. Lack of preparation is sure-fire way to lose. I know that putting it this way might seem annoying, but when I started, I was thinking that I’ll break the bank in a week. Now I know that only solid preparation, knowledge and calm attitude give the good results.