The modern forex trading market offers both novice and professional brokers a platform on which to trade and take advantage of the speculative opportunities to boost investment values. Forex and commodities brokers have invested significant resources and pooled years of market experience to create a dynamic trading environment which provides support to clients twenty four hours a day. It is hard to imagine the development that the forex industry has undertaken during the age of the internet for speculation on currencies is a relatively recent phenomenon.
How It All Began
Many years ago traders used a barter system so goods and services were routinely traded for other items and services. Even the creation of a money based financial system did not instantly create the sort of speculative opportunities we see today because currencies were traditionally backed with gold. Any paper based monetary system promised to pay the bearer of a financial note the equivalent sum in gold. This system was known as the gold standard and led to a boom and bust culture as nations and banks struggled to deal with large fluctuations in money supply. This system is credited with the origination of phrases such as “worth their weight in gold” and runs on banks were common as groups were able to exercise economic power by withdrawing their savings and putting pressure on a bank to release its reserves of gold. Speculation was increasing though any market activity has to be based on accurate information so the lack of widely available information hindered the development of a full scale forex market. Activity was often conducted at local level and although news did travel quickly, it was not at a sufficient pace to enable the sort of opportunities that exist today.
Impact Of War
In 1931 the gold standard was removed and with it the opportunity to speculate on currencies as previously. The change had been introduced to protect nations from political and market instability. Sentiment was sufficient to drive activity to a point at which transactions became unsustainable and it was felt that a more stable monetary system would be of benefit to the global economy. Towards the end of World War II an economic conference hosted in Bretton Woods, New Hampshire, rejected the advice of respected economist John Maynard Keynes to create a new world reserve currency and opted for a new system based on the US Dollar. A system of fixed exchange rates linked currencies to the US dollar which in turn was linked to the price of gold as the dollar was set at $35 per ounce of gold. The system was established as a permanent solution to exchange rate volatility but pressures from national economies pulling in different directions led to the eventual collapse of the Bretton Woods agreement in the early 1970′s.
Evolution Of Markets
The removal of the Bretton Woods system has led to the removal of restrictions in capital flows in most countries of the world. Currencies are traded according to the perceived value placed on them and although attempts have been made at fixing rates such as the European Monetary System and the Maastricht Treaty in 1991, none have succeeded and the development of technology has resulted in the creation of a huge financial industry.
How To Trade
Although individuals now have the information required to make sound decisions when speculating in forex markets and have the necessary technology, there are still a number of barriers to entry, notably access to capital. The existence of spreads and dealing costs means that traders must execute trades at high volumes in order to realise sufficient returns on their investment. Whilst professional traders may have access to capital, other individuals may have the tools and business knowledge to trade successfully but not the funds. Broker platforms do offer opportunities to leverage trades using a relatively small stake, the costs or benefits are multiplied by large multiples and this removes a barrier to entry for the smaller investor. It is still advisable for investors to have sufficient funds to deal with potential losses and anyone earning a regular income should be able to obtain an unsecured loan to create an investment fund. Although personal debt levels have reached record levels there are still many available products to assist investors with their funding strategies. Anyone confident in their ability to generate an income from their investments may seek to raise capital from unsecured loans. Money.co.uk recommends comparing rates, this enabling investors to choose from a wide range of available solutions. Whilst the value of investments can go down as well as up, the investment tools now available coupled with information services that provide up to the minute data, mean that opportunities to grow investments are within the reach of smart investors.
Freedom Of Information
In order to be a successful trader it is necessary to have good quality financial information. The increase in the provision of financial information first enabled commercial traders to gain access to trading platforms and deal in currencies and commodities by placing trades over the phone. Mobile phone technology expanded opportunities as it enabled traders to react quickly to changing information. Although they were established in the eighteenth century, companies like Thomson Reuters are at the heart of trading activity as analysts scour the news for information that will aid speculative decision making. News is now real time with the creation of twenty four hour television news channels and the internet enabling organisations to reach a global audience when releasing news updates. Individuals with no professional trading experience can now trade in currencies or commodities and the distinction between amateurs and professionals is shrinking. It is no longer necessary to be based on a trading floor or in an office because anyone with a computer screen, fixed or mobile, can gain access to similar information. Brokers can be used to trade when a certain price target is reached meaning that the investor does not even have to be present to execute a trade. Trading tools such as stop loss implementation mitigate the risks of switching off meaning investors do not have to constantly watch the progress of their trades to maintain control. This has opened up the markets to many new investors and has changed the way in which experienced traders do business. Trading platforms now carry news feeds and allow access to articles which can help form opinions over the suitability of investments. The rate of change has been rapid due to the advance of broadband and internet technology and the opportunities keep growing.