At the end of World War II, the whole world was experiencing so much chaos that the major Western governments felt the need to create a system to stabilize the global economy.
Known as the “Bretton Woods System,” the agreement set the exchange rate of the US dollar against gold. Which allowed all other currencies to be pegged against the US dollar.
This stabilized exchange rates for a while, but as the major economies of the world started to change and grow at different speeds, the rules of the system soon became obsolete and limiting.
Bretton Woods
Soon enough, come 1971, the Bretton Woods Agreement was abolished and replaced by a different currency valuation system.With the United States in the pilot’s seat, the currency market evolved into a free-floating one, where exchange rates were determined by supply and demand.
At first, it was difficult to determine fair exchange rates, but advances in technology and communication eventually made things easier.
Once the 1990s came along, thanks to computer nerds and the booming growth of the internet (cheers to you Mr. Al Gore), banks began creating their own trading platforms.
These platforms were designed to stream live quotes to their clients so that they could instantly execute trades themselves.Meanwhile, some smart business-minded marketing machines introduced internet-based trading platforms for individual traders.
Known as “retail forex brokers”, these entities made it easy for individuals to trade by allowing smaller trade sizes.
Unlike in the interbank market where the standard trade size is one million units, retail brokers allowed individuals to trade as little as 1000 units!
- Currency history refers to historical exchange rate data between currency pairs.
- Forex traders utilize currency histories in the process of technical analysis and FX charting in order to make better-informed trades.
- Many online forex brokers offer currency histories to users, but there are several other official resources for finding exchange rate data going back decades.
Retail Forex Brokers
In the past, only the big speculators and highly capitalized investment funds could trade currencies, but thanks to retail forex brokers and the Internet, this isn’t the case anymore.
With hardly any barriers to entry, anybody could just contact a broker, open up an account, deposit some money, and trade forex from the comfort of their own home.
Brokers basically come in two forms:
- Market makers
- Electronic Communications Networks (ECN)
Market makers = The foreign exchange market maker both buys foreign currency from clients and then sells it to other clients. They derive income from the price differentials on such trades, as well as for the service of providing liquidity, reducing transaction costs, and facilitating trade.
Electronic Communications Networks (ECN) = An electronic communication network (ECN) is a computerized system that automatically matches buy and sell orders for securities in the market. ECN trading is especially helpful when investors in different geographic areas wish to complete a secure transaction without the use of a third party.
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