What You May Not Know About The Global Forex Market?

Copyright (c) 2008 Orlando Thompson

This is an Article design to give you the background on the Global Forex Market to help you in your Forex Trading System Choices

The real attractions of short-term currency trading to provide investors are:

24-hour trading availability, 5 days a week with nonstop access (24/7) to global Forex dealers.

Anenormous market, making it easier to trade most.

Volatile markets offering profit opportunities.

The ability to profit in rising as well as falling markets.

Leveraged trading with low margin requirements.

Many options for zero commission trading.

Let's look at the history of the global forex market

The Bretton-Woods agreement, established in 1944, set national currencies against the US dollar, and set the dollar at a rate of USD $35 per ounce of pure gold. In 1967, a Chicago bank refused to make a loan in pound sterling to a college, professor by the name of Milton Friedman, because he had intended to use the funds to short the British currency. The bank's refusal to grant the loan was due to the Bretton-Woods Agreement.

Bretton-Woods was aimed at create global monetary stability by preventing money from taking flight across countries, thus eliminating speculation in the foreign currencies. Between 1876 and World War I, the gold exchange standard had ruled over the global economic system. Under the gold standard, currencies experienced an era of stability because they were supported by the price of gold.

However, the gold standard had a weakness in that lend to create boom-bust cycle economics. As the economy strengthened, it would import a great deal of gold, running down the gold reserves needed to support its currency. As a result, the money supply would drop, causing interest rates to escalate and economic activity would slow to the point of recession.

Eventually, prices of commodities would hit rock bottom, thus becoming very attractive to other nations, who would then hurry into a buying frenzy. In turn, this would add a large amount of gold to the economy until it increased its money supply, driving down interest rates and restoring economic stability. Such boom-bust cycles were know to be very common throughout that era of the gold standard, until World War II, in order to stabilize and regulate the Global Forex Market.

Participating countries agreed to to maintain the value of their currency within a narrow margin against the dollar and an equivalent rate of gold. The dollar gained a premium position as a reference currency, reflecting the shift in global economic dominance from Europe to the USA.

Countries were prohibited from devaluing their currencies by less that 10%. Post-war construction during the 1950s, however, required great volumes of Forex trading as masses of capital were needed. This had a destabilizing effect on the exchange rates established in Bretton-Woods.

In 1971, the agreement was scrapped when the US dollar stopped being exchangeable for gold. By 1973, the forces of supply and demand were in control of the currencies of major metropolitan nations, and the currency now moved more freely across borders. Prices were floated daily, with volumes, speed and price volatility all rising throughout the 1970s. New financial instruments, market deregulations and trade liberalizations emerged, further causing the growth of the Global Forex Markets.

With the explosion of computer technology that began in the 1980s accelerated the pace by extending the market continuum for cross-border capital movements through Asian, European and American time zones. Transactions in the Global Forex Market increased rapidly from nearly $70 billion a day in the 1980s to more than $3 trillion a day twenty years.