A Brief History of Forex
Although the forex market is providing its services for centuries, today’s forex market is a comparatively modern invention. People have been using this platform to trade or exchange goods. And they also exchange currencies to buy goods and services.
But after the 1917 Bretton Woods settlement, an increased number of currencies were permitted to trade smoothly among clients. However, the value of each currency depends on its demand and circulation. The matters related to currencies are under the control of Foreign Exchange Trading Services.
Currency trading in the forex market is held through commercial and investment banks. But other reasonable opportunities also exist. One can trade a currency to professional and individual investors.
The two distinctive features of currencies as an asset class are
How can an investor benefit from an interest rate differential? By buying the currency with a higher interest rate and shorting the currency with a lower interest rate, one can profit from the difference between two interest rates of two different economies.
Before the financial crisis in 2008, it was common to buy the British pounds (GBP) and shirt the Japanese Yen (JPY). As the interest rate between both currencies was very large, the investors earn maximum profit.
Although currency trading seems easy, exchanging currencies were a difficult task before the internet system. Forex trading entails a large sum of capital. The prospective currency traders were multinational corporations, hedge funds, or individuals with high net worth during that time.
With the arrival of the internet, an individual trader with a small account balance gets more spotlight. A retail market emerged that focus on individual traders, providing them access to the foreign exchange market. Many online brokers are out there in the market bid high leverage to individual traders who can regulate gigantic trade with less money.
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