13-06-2010, 02:09 AM
| | Forex online
The Forex online market was established in 1971, though it was only possible through a combination of technological, communicational and political advances. Understanding them and how they impact the trading of foreign currencies is a crucial element in becoming a successful, smart, trader. It is important to know that should there be a major event with any of these factors, currencies will be affected - on either side of the profit line. The goal of every trader should be to understand the market, to know what all the statistics mean and how major news can swing a countries currency by making it stronger or diluting its value.
The idea of a foreign currency EXchange dates back to the Middle Ages when the first paper money was introduced and represented a transferable payments for merchants and traders - like an I.O.U.-a promissory note. National governments, provinces and municipalities began storing gold, silver and other items of value and issued promissory notes against a set value. The problem was that on any given day that value could change based solely on the decisions of the kings and governors.
Up until the end of World War I (WWI), the Forex markets were relatively inactive and remained stable. However, after WWI the volatility of the Forex market greatly increased and investor speculation grew. From the mid 1870s until shortly after WWI, the international currency systems ran off the principles of the gold exchange model. As a result of being supported by the hard value of gold, paper money, currencies as they became known as, experienced a healthy life under this gold standard.(The term commonly used to describe a value of currency in direct relationship to a the price of a fixed weight of gold). The gold standard helped put an end to the practice of monarchs and dictators of indiscriminately degrading money, which was and still is a major trigger of inflation.
However, as much of a step-up for currency stability as it was, the gold standard had many problems as the industrial revolution advanced. The primary problem was the patterns that would see the constant redistribution of wealth within the world's countries. The peaks and valleys that many of these countries experienced was due, in large part, to the economic instability caused by a lack of gold reserves and a devaluation of other commodities.
Recession was not kind to many of the early speculators; some believe that it was because of this high level of speculation and guesswork which ultimately brought about the the Great Depression. And as a result of what was a very difficult period, people began learning the lessons needed to progress. Policymakers and politicians realized the weight of the currency markets on world finance and in 1931 a period of redefining the Forex and monetary policy began.
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