The History of Forex Trading
Before we begin to explain what forex trading is, we’d like to give you some brief historical context.
The Foreign Exchange market essentially came into life in 1875, with the birth of the Gold Standard Monetary System. This was a system through which each country fixed an amount of their currency to an ounce of gold to signal its value. The price of gold fluctuated between currencies and this soon created a currency exchange system.
World War II marked the end of the Gold Standard Monetary System and brought to life its replacement; the Bretton Woods System. This new system was implemented in 1944 and placed the US dollar as the world’s reserve currency. It was short lived however and came to an end in 1971. In 1976, the modern Foreign Exchange market sprung into life with the introduction of floating exchange rates. By the mid 1990′s, forex trading starting taking place on the huge electronic market that we use today.
The Modern Forex Trading Market
The forex trading market is an international decentralized financial market whereby one currency is exchanged for another. Individuals and business entities can buy an amount of one currency and pay for it with an amount of another. So a company in London can import products from a company in Rome and pay for these products in euro, not sterling. This easy conversion of one currency to another facilitates international trade and investment.
What makes this market so amazing is the fact that it knows no geographical boundaries, it’s easy to access, it’s available 24 hours a day, 5 days a week and it is the most liquid market in the world.
When trading in the forex market there is one simple philosophy; when you trade one currency for another, you buy the currency that is predicted to rise in value (long position) and sell the currency that is predicted to decline in value (short position). You can make such predictions using popular trading tools, but there is always an element of risk in trading. If the currency you bought does rise in value as you predicted, you can sell it and make a profit, but if it falls in value, you will suffer losses. You don’t need to be a financial expert to be a good trader; forex trading is simple to learn if you want to give it a go.
Where do we come in? Brokers bring buyers and sellers together; we scan the market for the best bid and ask prices and offer traders the best prices available. In the forex market, we are the intermediary; we carry out the transaction for you.
The Three Sessions
The forex market never sleeps and this is because activity continues at all times and in all corners of the globe. This is established through the three session system, a system which makes it possible for traders to trade whenever they want, regardless of the time or place.
22:00 GMT -
The Asian Session
Following the weekend, activity is first recorded in the Asian markets. The Australia market goes live at 22:00 GMT and ends at 06:00 GMT. Some of the other countries which are active during this period are China, Russia, New Zealand and Japan.
08:00 GMT -
The European Session
As the Asian session draws to an end, activity begins in the European session and the two sessions overlap. The primary market here is the London market but other significant markets present are European markets such as Germany and France. Activity begins at 08:00 GMT and ends at 16:00 GMT.
14:30 GMT -
The US Session
Halfway through the European session, at 14:30 GMT, the US session commences until 21:00 GMT. New York City is the greatest participant of this session. Once it ends there is a brief period of stillness until the Asian session begins again.