The history of Forex trading goes back to ancient Babylon. Since then different currencies as well as the need to exchange them existed. No speculation on currencies like we have in the market today.
The value of goods was expressed in terms of other goods (barter system). However, as the economic relations developed, a common base of value has to be established. Although many different items were used for money in the past, people eventually discovered that gold was the ideal material for money. But gold was heavy, and how much a person could carry is severely limited, since a 10 dollar gold piece, for example, would be 10 times heavier than a 1 dollar gold piece.
That is why governments decided that printed currency, usually called bills or notes, was the solution. However, the printed money was still attached to gold: most governments supported their currencies with convertibility to gold. Under the gold-exchange system, which prevailed from 1879 to 1934, the value of the major currencies was fixed in terms of how much gold for which they could be exchanged, and thus, they were fixed in terms of every other currency. If, by example, a British pound was worth 24 grains of gold and a U.S. dollar was worth 12 grains of gold, then the British pound had twice the value of a U.S. dollar, fixing the exchange rate at 2 dollars for each pound. The main problem with the gold standard was that if a country was not competitive in the world marketplace, it would lose more and more gold as more goods were imported and less exported. With less gold in stock, the country would have to contract the money supply, which would hurt the country's economy.
Near the end of World War II, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The conference held in Bretton Woods, New Hampshire rejected John Maynard Keynes suggestion for a new world reserve currency in favor of a system built on the US Dollar. The Bretton Woods agreement resulted in a system of fixed exchange rates that reinstated The Gold Standard partly, fixing the USD at $35.00 per ounce of Gold and fixing the other main currencies to the dollar, initially intended to be on a permanent basis.
The Bretton Woods system came under increasing pressure as national economies moved in different directions during the 1960's. A number of realignments held the system alive for a long time but eventually Bretton Woods collapsed in the early 1970's following president Nixon's suspension of the gold convertibility in August 1971. The dollar was not any longer suited as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.
The last few decades have seen foreign exchange trading develop into the world's largest global market. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.
Managed floating exchange rate, which is the system that exists today, is a rate that mostly floats, but is sometimes changed by countries, usually affected by their central banks, by intervening directly in the forex market, usually be buying or selling the currency that the country wants to influence, and thereby influencing supply and demand. The major benefit of the flexible floating exchange rate is that it corrects imbalances automatically. Another major benefit of the floating exchange rate is that it allows countries to manage their own economies through monetary policy, expanding the money supply to stimulate the economy, or contracting it to rein in inflation.
While foreign exchange market initially worked under the central banks and the governmental institutions, later on it accommodated the various institutions, and now it also includes online brokers and individual traders. The size of the Forex market now dwarfs any other investment market and is the largest financial market in the world.
By opening an online managed Forex account with SecureInvestment.com every investor can find the investment scheme that suits their best or even develop their own investment strategy to increase the returns.