End of the
Gold Standard: Floating Currencies
It was President Richard Nixon who
ended the gold standard on August 15, 1971 due to the rapid inflation
caused by rising gold prices. Investors were exchanging their US
Dollars for gold due to the slowing economy, which increased the
price of gold and worsened inflation.
However, while the US Dollar became a
floating currency immediately, it took a little over a year and a
half before the other currencies unpegged their currencies from the
US Dollar. Since 1973, the majority of the world's currencies have
been a part of the floating system, with the exception of a few that
are pegged/managed by their respective governments.
In a free-floating system, currency
values are determined purely by supply and demand for those
History of Forex: The Open Forex
Note: Euro did not exist until 1999.
It was around this time in 1972 that
the Chicago Mercantile Exchange (CME) began to offer currency trading
in the International Monetary Market (IMM) division.
Historically, the Forex market was
purely an Over the Counter (OTC) market with no physical
location or exchange. Technically, the forex market is still
considered an OTC market; however, having currency trading on an
exchange eventually turned into the birth of forex market-makers who
make it possible for individuals to trade in the forex market today.
As an individual trader, it is
impossible for you to trade directly with the forex market. All the
major participants are large banks and financial institutions.
Therefore, whenever a trader is buying or selling currency pairs,
they are actually trading with their broker or dealer, who is a
The forex broker/dealer is then the one
trading with a bank or financial institution who is actually the one
trading directly with the forex market. This fact is why the
reputation of the forex broker is important, because they are taking
the other side of your trades.
However, without these brokers
creating this secondary market, individuals would be unable to trade
History of Forex: Volume of the Forex
The Foreign Exchange market is the
largest financial market in the world with trillions of the world's
currencies being exchanged every day. Compared to the average daily volume of the New York Stock Exchange (NYSE), which is typically under $1 billion per day, the forex market has over 5,000 times the amount of volume.
Unlike many other financial markets,
the forex market is decentralized, which means there is no oversight
or governing body. The market participants (central banks) in the
forex market self-regulate, which has historically been very
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