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The origin of the exchange market

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The origin of the exchange market

The origins of the Forex market are long periods of time and can be traced back to the Middle Ages, which saw the beginning of the exchange markets with the invention of the bankers for the idea of ​​stock exchanges. The use of third parties allowed for more flexibility, and trading in the trading markets has seen tremendous growth.
The modern forex market has seen periods of high volatility followed by other periods of relative stability. In the mid-1930s, London became the main foreign exchange trading center, with sterling playing the role of the benchmark currency in circulation, as well as being the first reserve currency.

After the end of the Second World War and the devastation of the British economy, the United States was the only superpower to emerge from the war without catastrophic consequences, opening the way for the US dollar to steal the role of the British pound as the reserve currency in many countries. This role is strengthened after the dollar pegged to gold at $ 35 an ounce, making it the global reserve currency to this day.
The origin of the exchange market
The origin of the exchange market

The era of free currency trading began at the end of the 1970s. Such a transformation was a milestone in the history of world markets during the 20th century, and its effect was the formation of the Forex market in its modern sense. Since then, anyone has been able to trade any currency, whose value is determined as a function of the current demand and supply factors in the market and without the need for government intervention. Forex markets have seen tremendous growth in volumes since floating currencies and applying the free exchange rate regime. Trading volumes in 1977 were about $ 5 billion, then increased to $ 600 billion in 1987, reaching $ 1 trillion in September 1992 and stabilizing around $ 5 trillion in 2010.

In this article we briefly review the key factors that led to this huge growth in currency trading volumes. The main reason is the increase in exchange rate fluctuations, with the mutual influence of different economies on interest rates set by central banks, which have a significant impact on the value of currencies, as well as increased competition for commodity markets, Operating in different countries, and finally the technological revolution that took place in the field of currency trading. The latest factor in the development of automated trading systems and the transition to online currency trading has been demonstrated. In addition to trading systems, the development of matching and settlement systems has brought together millions of traders from around the world, which has inflated brokerage markets.

The technological revolution, the tremendous advances in software and communications systems, and the accumulation of experience have also increased the professional level of Forex traders and their ability to profitably and manage risk significantly. These combined factors have contributed to the boom in volumes in recent years.

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