Forex is one of the most enormous and liquid markets around the globe. In 2010, the forex market accounted for more than 3 trillion dollars of daily trading.
Over the last decade, a 40 per cent increase in the daily volume of forex trade with 6.6 trillion dollars each day is seen.
This marks a nine-year peak since 2010. But the surprising fact is that the market did not exist a century ago. Unlike the stock market, we cannot trace the roots of the forex market.
Let us look at the origins of the foreign exchange market and how it operated today.
How old is the forex market?
A few people say that the forex market is as old as the barter exchange system. Yes, this led to the currency system’s birth for exchange purposes, but no evidence suggests shorting of currencies.
The main reason why there was no real forex market in the past was that most of the world currencies were gold and silver. The early paper currencies were bills of exchange for precious metals that were held in reserves.
Here is a history of events that influenced forex trading:
- The Bretton Woods System (1914-1939)
During World War one and two, the gold standard broke down, leading to the Bretton Woods System. The US, France, and Great Britain met at the United Nations Monetary and Financial Conference in Bretton Woods to give birth to a new economic order that will perform globally.
- The Plaza Accord (1985)
In the early 1980s, the dollar increased significantly against other major currencies in the financial markets. This became challenging for exporters, and the US ran a deficit of 3.5 per cent of GDP.
The US dollar weight crashed other nations into debt and closed factories in America as they couldn't compete with foreign competitors. This led to the formation of the Plaza Accord that was initiated to encourage appreciation of non-dollar currencies.
- Internet Trading (1990)
In the 90s, the currency maker came out to be more structured and systematic. Trading became faster than ever because the perception of people was changing. The advancements came with capitalisation and globalisation.
For the foreign exchange market, everything changed. Currencies that shut off can now be traded with flexibility. New markets started emerging in places like Southeast Asia. They started attracting capital and speculation.
This timeline of the forex market since the Bretton Woods System symbolises the freedom of the market in its glory. The competitive influences created a highly flexible and uncrushed liquid marketplace.
Spreads fell dramatically, and there was immense competition among participants. After the emergence of online brokers rendering forex trade, high leverage of 1:400 or 1:500 were offered on major currency trades.
Many brokers like T1 Markets, the early admitters of forex trade, provide the trade with the lowest spreads and substantial leverage.
Why does the forex market never sleep?
The capability of the forex market to never sleep and trade for 24 hours lies in the way it takes part in varied time zones. Moreover, the trade is conducted on various computers and is not restricted to a physical exchange that is to be shut off at a particular time.
The forex market can be broken down into three core parts depending on the regions:
- Europe
- North America
- Australasia
There are several core financial centres in these central regions of forex trade.
What makes the forex market so famous and extensive?
Here are the various significant reasons as to why the forex market is the largest market at current times:
- First of all, forex trade has a pan presence and provides the most flexible trade. This, in turn, offers high Liquidity . One just needs a computer machine with internet access. At the time, the market is open 24/7. You can always find someone to trade with any time you want.
- Forex markets open up doors to various opportunities for traders. One can trade without actually owning the currencies. You can go both short and long trade with the currency pairs you choose to trade. Apart from this, you can pull out various strategies like leverage in your trades to make huge profits.
- One can benefit from the high volatility of the forex market. High volatility increases the chances of more significant profits when pursued in the right way.
- Another reason the forex market is the largest market because it is utilised and traded by huge entities like MNCs, Investment and Commercial banks, Hedge Funds and Investment Managers, and Central Banks.
Forex Market Today
According to a survey conducted by BIS, the forex market achieved an enormous number of 6 trillion dollars per day in April 2019. The estimated worth of the entire global forex market is about 2409 trillion dollars.
The forex even surpasses the largest stock exchanges like NASDAQ, which has a daily volume of 200 billion dollars.
The forex market trades around 170 countries in the world. The everlasting forex market provides infinite opportunities to traders and investors.
The market is the largest and highly liquid because it allows for the most flexible trade with global reach benefits. Even though the market is already giant, some forecasts suggest an annual growth rate of 6 per cent in the next five to six years.
Conclusion
The reason why the forex market is the largest financial market around the globe: it gives power from retail investors to godly central banks to seek profits from the fluctuations and changes in the currencies at a global level.
Like hedge funds, all kinds of trades, speculative trades, day trade, or anything, are profit-motivated. One can find his or her most viable variant and trade that way in the forex market.
The highly liquid global market impacts and influences businesses and corporations around the world. The fluctuations and movement in the market result from global earnings, inflation, and balance of Payments (BOPs) of each country.
The comfort and flexibility offered by the forex market make it what it is.
