The History of Forex
The History of Forex#
The foreign exchange market (Forex, or FX) is the largest financial market in the world, with daily volume of $7.5 trillion. Open 24 hours a day, five days a week, it connects every economy on the planet. Its history is bound up with the evolution of the international monetary system.
The gold standard
The major economies adopt the gold standard: each currency is convertible into a fixed quantity of gold. This stabilizes exchange rates but limits governments' monetary flexibility.
Bretton Woods
Forty-four countries sign the Bretton Woods agreements. The dollar becomes the reference currency, convertible into gold at $35 an ounce. Other currencies are pegged to the dollar. The IMF and the World Bank are created.
The end of Bretton Woods
On 15 August, Nixon suspends the dollar's convertibility into gold (the "Nixon Shock"). It is the end of the fixed-rate system. Currencies begin to float freely against one another.
The birth of modern Forex
The floating exchange rate system is formally adopted. Banks begin speculating on currencies. The Forex market as we know it is born.
Electronic Forex
The first online forex trading platforms appear, opening the market to retail participants. Previously, only banks and large institutions could trade currencies.
The market today
$7.5 trillion changes hands daily. Forex is dominated by USD pairs (88% of transactions). Algorithmic trading accounts for 60-70% of volume.
$7.5tn
Daily Forex volume
88%
Transactions involving USD
24h/day
Open Sunday to Friday
170+
Currencies worldwide
The Major Pairs#
The seven major pairs account for 85% of volume: EUR/USD (the most traded, at 24%), USD/JPY, GBP/USD, AUD/USD, USD/CHF, NZD/USD and USD/CAD. Pairs involving the euro or sterling without the dollar are known as "crosses".
Trading Sessions#
Forex follows the sun: the Sydney session (22:00-07:00 UTC), Tokyo (00:00-09:00), London (07:00-16:00), New York (12:00-21:00). The London-New York overlap (12:00-16:00 UTC) is the most active and volatile window, and the best for trading.
George Soros vs the Bank of England
On 16 September 1992 ("Black Wednesday"), the speculator George Soros bet $10 billion against the pound sterling, forcing the United Kingdom out of the European Exchange Rate Mechanism. Soros made roughly $1 billion in a single day. It remains the most famous forex trade in history.
Regulatory Warning
Leveraged Forex trading is extremely risky. France's market regulator, the AMF, reports that 89% of retail Forex/CFD investors lose money. Invest only what you can afford to lose.
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