History of Forex Trading:
The formal journey of Forex trading started on 1971,and that was possible through the combination of technology, communication and political development. The concept of exchanging foreign currency was introduced on the time of middle ages while for continuing buying and selling of goods, the paper notes were issued. Basically in 1876 the system of gold exchange standard was introduced and that time value of currency was determined based on the value of gold. That’s why paper currency were kept in a country equivalent to total gold. That system was better but when the price of gold was increased immediately, this system founded faulty and needed to exit.
This gold exchange standard was cancelled on the time of 2nd world war when European countries did not have enough money to implement their large projects. After then, the idea was taken that, all currencies will have definite value and American dollar will be the base reserved for all the currency which is only one determined currency against gold. This system was recognized as “Breton woods system” which was imposed on 1944. In 1971 USA declared that they are not more interested on exchange of dollar against gold, which was collected as foreign fund.
For this reason this system also cancelled. In 1971, American president Richard Nixon took the dollar from the gold standard for collecting fund for Vietnam war. This process impacts on government policy and the result of this change is dr-cr system. Currency became “free-floating” on most of the developed countries on the time of 1973. And through this, modern foreign currency was introduced in the market which changed its look into mechanical and automated system.
On the definition of Forex reading, it was noted that transactions of Forex occur with the help of bank. For example, the partner of ARMADA markets is City bank LMAX. Large banks complete each day transactions of hundred billion dollar.
In our country Forex trading isn’t permitted that’s why presence of financial institutions are a few. Outside of our country there are many financial institutions who transact money for exchanging their product in various countries. For meeting demands of these organization’s various country’s business, an important transaction with huge amount of Forex takes place.
Although most of the transactions of Forex trading are hold by bank and financial institutions, participate of retail traders also increasing. Let think about our country, facing loss in share market. Most of the people are now interested towards Forex and started trading also.
Simply it is currency. When we buy one country’s currency that means we are buying the share of that country. Seems buying share of an organization. Price of currency indicate the image of present and future financial condition of that country. When we buy Japanese yen, that means we are buying a share of Japanese economy. We think that Japanese economy is developing and will develop further. When we shall sell these shares, we hope we will get benefit from these.
Basically the exchange rate of currencies between two countries reflects the comparison of these country’s financial system.
We know that the value of currency of one country regularly change on the basis of that country’s financial structure. Sometime EUR against USD gets stronger, on the other hand, USD against EUR gets stronger. Thus currency of all countries gets stronger and weak against each other.
Read Also: Comparison of Forex with Stock market
That means in pair if price of one get increase, other’s price decreases. For this reason while increment the price you can gain profit and while decreasing price you can gather profit. That’s the feature that makes Forex trade exceptional than other business. That’s what makes it more popular. In other markets you need to wait for the price increment if the price of product you bought decreases, that’s clear as price decreases. You have less opportunity to profit, or you need to wait for the time when the price will decrease and you will buy the product in less price and will sell in higher price. On traditional market businessmen wait for that time when price falls. So that they can buy in less price and sell in higher or they wait to fall price while price reaches its highest.
But Forex market is not based on highest or lowest price concept. Because depending on the currency situation there are no limitation related to higher or lower price. The interesting fact of this market is you can make profit either price increases or decreases.