Table of Contents
What is the History of Forex Trading?
Whether you’ve been trading for years or just started to trade forex today, the history of Forex is worth knowing, if only to expand your knowledge to benefit your trading practices in the future.
“Forex” means “foreign exchange” or simply “the currency markets”. These are the trading markets that any trader can easily access, with its main focus on the currencies of different countries around the world. In this article, I will help you with a quick overview of the history of Forex trading, its ups and downs, what to look for when it comes to starting, what you need to know about trading Forex now and how it works and more…
The first ever broker to offer a full suite of trading facilities was Stock Exchange House Limited in 1873. Since then, Forex has grown to become one of the most successful, well-known and trusted financial products on the planet, but at first, traders had no idea what it really meant or even what it looked like. They simply traded between commodity shares, stocks, bonds or futures on the New York Stock Exchange. It wasn’t until 1931 that the major world financial players were able to agree upon a set of rules and regulations, the Commodity Futures Trading Commission, which became involved after complaints about highly speculative hedge funds.
Soon afterwards, the Stock Exchange introduced overnight trading and the introduction of stock and bond options, providing investors with the opportunity to trade not only currency prices in real-time but also a whole range of other commodities as well. But the more financial institutions came to be regulated by such financial authorities, the less public interest was aroused in this new industry. This was not helped by the fact that none of these authorities was willing to disclose all their details of how they came to their conclusions on why they issued the regulations that they did and did not. There was a lot less transparency then.
So it remained one of the least regulated and most speculative financial products in existence. This trend continued for more than two decades, but it did not take long before people began to wonder whether this was a sustainable business model for the long-term future, especially in light of some of the regulations that eventually grew into global legal frameworks.
To help investors minimise the risks of investing in the share market, Stock Exchange House opened its own proprietary stock exchange in 1975. New York Stock Exchange soon realised that shares were simply another commodity. There is nothing special about them. A company like Coca-Cola, which is traded on the NYSE, has no distinguishing features and could be owned by anyone at all.
The volume of trades has almost doubled every decade, and that amount will most likely rise significantly in the coming years due to retail investing accelerating in popularity. It has also become quite common to see institutional investors entering the markets, primarily by means of investment vehicles such as mutual funds and hedge funds. These investors will take advantage of far greater resources, including millions of dollars of liquidity. There are more and more asset managers, financial advisors, and brokers, and so overwhelming the supply of competition.
This period marked the beginning of the end of what we now call the Shareholder Value Myth. The theory that only a small group of the wealthiest people would always hold more wealth than the rest of society combined, assuming a constant, perpetual growth rate of assets, at a time when the world had become much smaller in terms of total area. Today, however, it is a fact that wealth grows with the economy.
With the introduction of cryptocurrency wallets and mobile phones, people have become a lot richer. For the first time, people can potentially transfer assets from abroad without having to pay extra fees to outside authorities in a certain country. If we consider the current situation in which around 99% of the world’s population lives on just 2% of the planet, there is probably still an untapped level of wealth in the future of finance, given the potential future of production and global trading still to be explored. We can expect that the value of the world’s money will increase substantially, thanks in no small part to a growing number of investors. Many economists predict that the biggest asset bubble that humanity has ever seen will happen soon due to all this speculative value. There’s lots of wealth still to be made!
All this trans-formative growth over the years in the market has made it easier than ever to become involved in investing, particularly Forex trading, with almost everyone having a broker that allows them to open a trading account.
We hope this brief insight into the history of Forex and hedge funds has been intriguing and that perhaps we’ve started you on a journey or inspired you to continue to explore the world of investing.