The History of Forex Market - How it All Came to Be

At the beginning, the values of different goods were being expressed by means of other types of goods. This type of system was known as barter. Centuries ago, people trade objects in place of other objects. During these times, everything was traded, from teeth to decorative stones. Soon, metals started to become valuable, especially the gold and silver. However, this type of trading has limitations.

Before the era of modern technology, coins were minted from a metal of preference. This was before the introduction of governmental paper form of IOUs (this means "I owe you") was accepted in the Middle Ages. These IOUs were the roots of the present currencies. Before the start of World War I, majority of central banks supported currencies with convertibility into gold. Even though paper money can be traded for gold, this did not happen often. And in the later stages of the World War II, Bretton Woods agreement was settled in July 1944. It resulted into a system of permanent exchange rates. However, this system went through great pressure when the national economies took their own separate ways. The idea of the fixed exchange rates died.

The lack of maintenance of fixed forex rates gained relevance with the Southeast Asian events during the later parts of 1997 where currencies were continuously being undervalued against US dollar. While companies have to face much more unstable currency environment, the financial institutions and investors found a new playground in the form of foreign exchange market. The forex market currently dwarfs any kinds of financial markets. Presently, US$3,000 billion or $3 trillion is being traded daily, more than the bond and stock market combined.