The Evolution of the Forex Market: How has it Evolved throughout the Years?

While the creation of the gold standard monetary system in 1875 was lauded as one of the seminal moments in economic history, few could have predicted that it would evolve into the modern forex market that we have access to today. This event triggered an evolution that has continued at pace for more than a century, however, while building a formidable entity that now processes more than $4 trillion during a typical day’s trading.

 

Prior to the introduction of the gold standard system, countries were only able to use gold and silver (or similar precious metals) as international payment methods. While this may sound logical, this created a huge issue in terms of value, as the viability of silver and gold would fluctuate wildly in line with supply, demand and the global economic climate. This caused a huge imbalance in the international market, particularly during times of austerity or when a new gold mine was discovered.

 

How the Forex Market Has Evolved Over Time

 

While gold standard initiative did not immediately lead to the cessation of using precious metals as forms of international payment, it at least created a guideline and guaranteed conversion rate. In effect, governments used the newly-implemented system to guarantee the conversion of currency into a specified amount of gold, using the precious metal as a source of security and a store of wealth. Although this required countries to maintain a huge gold reserve, it also laid the foundations for the evolution of the modern-day forex market.

 

Ultimately, the gold standard broke down at the beginning of World War I, primarily because of the need to print money in order to fund international, military operations. This caused the value of gold to decline in the short-term, but the notion of this precious metal being a secure store of wealth that underpinned currency values remained intact.

 

More than 20 years later, it was determined that a new system of international monetary management would be implemented. While gold would remain a true indicator of monetary value, the US dollar was instead projected as the primary reserve currency, providing a rigid and regulated way of determining international exchange rates. Regulated by international bodies such as the IMF (International Monetary Fund), this created a system that has created a formidable and vast forex market where exchange rates are calculated in a fair and transparent manner.

 

The Age of Technology and Online Trading

 

While the market has evolved considerably since these times, the legacy of these formative systems remain. In fact, the most noticeable changes of the last three decades have manifested themselves in innovation and technological advancement, as so many of the barriers associated with forex trading (accessibility and the impact of volatility) have been gradually removed.

 

From the emergence of online brokerage platforms to the modern-day capacity for real-time trading, the contemporary forex market is now more accessible and user-friendly than ever before. Its interesting history has also ensured that it is well-regulated and fairly managed, offering independent traders the best possible opportunities in the marketplace.