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In 1944, the Bretton Woods Agreement seemed to offer an answer for global economic reshuffling. However, by the 1950s, global expansion and growth generated massive movement of international capital, destabilizing the international agreements set out in the Bretton Woods.
Under the Bretton Woods, nations had agreed not to devalue their currencies except within a small margin and to maintain their currency value against the dollar in relation to gold. However, the basic laws of economics reigned over economic policies, and market forces of demand and supply led to an abandonment of the agreement in 1971. At this point, the United States would no longer be convertible to a gold equivalent, and currencies traded against each other more freely. - The decade of the 1970s was a creative era responding to global market forces during which time new forms of financial tools, strategies, services, regulations and freedoms emerged. The 1980s, iconic for its computers and other technological advances, furthered the global exchange of goods, services and financial explosions. Foreign exchange to import/export these goods and services went from billions of dollars per day to trillions per day. With that, the values of international currencies during those exchanges created a lucrative opportunity for investment, and the business of exchanging currency for currency became a financial industry.
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www.fxcm.comAs investors moved their U.S. dollars from U.S. national banks to offshore banks to protect it from activities of the U.S. government, the eurodollar market emerged. Russian oil earnings in U.S. dollars were deposited in non-U.S. national banks because of the fear of the U.S. regulators freezing Russian access to funds. With the growing pool of U.S. deposits beyond U.S. territory, moves by the United States to control this activity were perceived as creating an unfavorable investing environment. Soon U.S. investors realized that eurodollars were a more investor-friendly way to store profits and obtain investor-friendly loans, causing the euro market to become a major market player. -
Federal Reserve Bank of NY http://www.flickr.com/photos/maxiano/1244253498/The explosion of the technology industry of the 1980s also included the development of systems and protocols later known as the Internet. The Internet revolutionized global communication and banking and facilitated the establishment of online foreign exchange (forex) trading in 1994. Online forex trading has undergone major renovation to become the industry as we know it today. Now there are more service providers, and the opportunity to participate in online forex trading is not limited to large banks and corporations. Anyone with a computer, Internet access and the financial curiosity can venture into forex trading from the comfort of their own homes 24 hours a day. -
http://www.babypips.com/school/the_skinny_on_forex.htmlUnlike stocks or futures, forex trading has no centralized exchange. All transactions occur via the Internet or phone through forex brokers and trading houses. This makes the forex industry free of geographical limitations.
According to the Federal Reserve website: "The Federal Reserve Bank of New York carries out foreign exchange-related activities on behalf of the Federal Reserve System and the U.S. Treasury. In this capacity, the Bank monitors and analyzes global financial market developments, manages the U.S. foreign currency reserves, and from time to time intervenes in the foreign exchange market. The Bank also executes foreign exchange transactions on behalf of customers." - The United States is a major player in the forex industry as the dollar is involved in 86 percent of the currency pairs traded. The euro is next at 37 percent of the market, and the yen holds 16.5 percent. With trillions of dollars exchanging hands on a moment-by-moment basis, the value of currencies also changes as fast, allowing investors to buy and sell currency pairs through the 24-hour market for a profit. For example, in a given day, the British pound/U.S. dollar pair (GBP/USD) may see a change in value within a 24-hour day by 400 pips. If each pip represents $10 (a standard lot size for most forex trading platforms), theoretically, on just the trade of that pair, an investor could increase his financial portfolio by $4,000 in 24 hours. The potential for massive profit has created an incentive to participate in forex much as did the gold rush of the mid-1800s.
