Origins of the Foreign Exchange Market
The idea of exchanging currency dates back further than most people would believe. The Babylonians were the first civilization to use paper money, after which arose the need for moneychangers in the Middle East. Since that time, money changers exchanged currencies for different merchants the world over as capitalism and markets grew. However it wasn't until 1973—with the failure of the Smithsonian Agreement and European Joint Float—that that the foreign exchange market we know today was born.
Foreign Exchange Market Development
The foreign exchange market evolved rapidly with the development of new technology in the mid-1990s. In the beginning, single-bank portals provided institutional traders with access to the foreign exchange markets, although this access was severely limited by today's standards. A trader could only see indicative prices, deal in restricted sizes and could not adequately manage their positions.
An increasingly globalized world and the crash of equity markets in 2000 spurred major growth for the foreign exchange market. These factors led money managers to re-examine their foreign exchange exposure and view foreign exchange as a unique, tradable asset class.
The Foreign Exchange Market Today
According to the latest figures, daily turnover in the foreign exchange market is equivalent to $3.5 trillion—making the foreign exchange market the world's largest capital market. Forex is the only market that approaches near “perfect market” conditions. In economic theory, a “perfect market” exists with no transactions costs, a large number of participants (liquidity), freedom of decision and the free flow of information.
ACM—A Key Player
ACM, our licensor, was one of the first firms to implement technology that could deliver a complete solution to traders globally—thereby harnessing the full potential of foreign exchange trading.
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Foreign Exchange Milestones
- 1944 Bretton Woods Accord established
- 1971 End of Bretton Woods Accord and establishment of Smithsonian Agreement
- 1972 European Joint Float established
- 1973 Failure of Smithsonian Agreement & European Joint Float
- 1978 IMF mandated Free Floating Fx system & European Monetary System introduced
- 1993 European Monetary System collapse opening the door to a global free floating system.
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