Complete Newbie's Guide To Online Forex Trading
What Is The Forex Market All About?
The term 'Forex' is short-hand for 'foreign exchange.' The Forex Market = The Foreign
What are being exchanged on this market are not stocks or bonds, but currencies (monies)
from around the world.
In other words, the Forex market is the place where U.S. dollars, Euros, Yen and other
major currencies are bought and sold. It represents the largest financial market in the world
The origins of the foreign exchange market date back to 1944, when The United Nations
Monetary Fund convened in Bretton Woods, New Hampshire to devise a plan for stabilizing
the world economy.
The British Pound had been, up until World War II, the monetary unit of choice when
comparing the relative value of foreign currencies. However, Hitler's regime managed to
devalue the Pound by way of a massive counterfeiting scheme. Something had to be done
quickly in order to avert a worldwide economic depression.
Out of this meeting came the Bretton Woods Accord. This new policy implemented the
Gold Standard, tying the value the U.S. Dollar to the price of one ounce of gold ($35.00 per
ounce at the time). It was further agreed that the Dollar would replace the British Pound as
the benchmark “currency of exchange”.
All other currencies were aligned to the Dollar, and a 'fixed exchange rate” of +/- 1% was
In other words, a foreign currency could fluctuate up to a maximum of 1% higher or lower
than the Dollar. Any fluctuations beyond this limit required that the 'offending' nation's
central bank step in to correct the imbalance.
The Bretton Woods accord remained in effect until 1971, when it was determined that the
U.S. dollar could no longer hold steady relative to gold. At this time, the 'fixed exchange rate'
model was abandoned in favor of the 'floating exchange rate' we still use today.
Note: If any of these terms are unclear or confusing, don't worry. We'll look at them more
closely when we get into the nuts and bolts of Forex.
The important thing to understand right now is that Forex trading among private investors is
still relatively new. The market once operated almost exclusively between government
The Complete Newbies Guide To Online Forex Trading |