Today, currency trading on the stock exchange is perceived as a natural and logical process. Traders do not often think about the question “why with money?”. Often you can hear from them: "This is logical!" or “Why not?”, but it is impossible to understand the foreign exchange market without delving into its history.
It should start with the date and reason for the founding of the forex market. The official "birthday" of the currency exchange falls on August 15, 1971 - the signing of the Smithsonian Agreement. Before that, the world lived, albeit according to a modernized, but still analogous to the “gold standard” established by the Bretton Woods agreement. Let's take a closer look at the reasons.
For starters, it is important to mention — the Bretton Woods agreements were adopted with the aim of stabilizing the world economy and its unification. So 44 national currencies were equated to the dollar, and that, in turn, to gold. The system was distinguished by strict principles. Among them:
Only by comparing the results of the Bretton Woods conference and the Smithsonian agreement can one get a correct idea of the scale of change. And you should start with the background. Namely, from the mid 40s of the 20th century.
The Second World War swept like a tornado across the countries of Europe and the Pacific region. Ruins instead of cities, a demographic crisis and the lack of any benefits from the population — a picture characteristic of those times. Only a large-scale restoration could change the state of affairs. But destroyed enterprises, rural and urban economies, infrastructure needed financial injections. One-off payments to the affected countries could not bring significant results. Then, in July 1944, at the Bretton Woods Conference, the system of the same name was adopted.
It is important to note that before the end of World War II, there was a "gold standard" — a system in which the value of a currency depends on the state's gold reserves. Effective (and uncontested) at the beginning of the 20th century, but outdated by the middle. In light of the confident victory of the Allied countries in the war, on the eve of new, hypothetical conflicts, most capitalist countries began to consolidate around the future world hegemon — the United States. At the same time, it became clear that it was necessary to store the gold reserve in the safest places. On the territory of the country, this seemed not the best option, since the enemy could simply seize the storage. Then most of the capitalist countries transferred a significant part of the gold for storage to the United States of America. This guaranteed security, as owning a country did not seem like an entirely viable option.On the examples of the war, it became clear how dangerous it is to store gold reserves on your territory, because if the enemy captures it, gold will go completely into his hands.
In turn, the Bretton Woods system went down in history as the gold dollar standard. It is important to note that by the 1960s, 80% of the world's gold was in US banks. The reason for discussing (and developing) alternatives was the crisis wave of the late 60s and the first half of the 70s. We will describe it in a few paragraphs.
In 1968, a dual market for gold (public and private) was allowed in the United States. The market principle of supply and demand worked on non-state platforms. Prior to this, the system prohibited any trading at non-fixed prices. Meanwhile, for the official banks, the exchange rate remained at $ 35 per ounce.
Three years later, the President of the United States of America, Richard Nixon, initiated a temporary restriction on the conversion of the dollar into gold for central banks. In the same year, there was a devaluation of the national currency and amounted to 7.9% growth. The official price per ounce of gold jumped to $ 38.
By 1976, there was a devaluation to $ 42.2. The international conference in Jamaica ended with the pegging of the exchange rate to market laws. From that moment on, the value of government monetary units ceased to be fixed and turned into an analogue of shares and similar assets. The system of fixed exchange rates ceased to exist. A transitional period began, within which countries could test new models of monetary principles. Let's briefly describe why.
Since national monetary units are a combination of internal and external economic factors, their value directly depends on the state of the entire structure of the state. It is influenced by both the drought in a particular region and the fall in the shares of large private enterprises in the country. Even seasonal changes lead to fluctuations in the exchange rate of the national currency. Thus, it is simply impossible to maintain a stable price.
In 1976, at the Jamaican Conference, the IMF member countries decided to reorganize a new, international monetary system. At the same time, the model of free mutual conversions came into play, which provided for fluctuations in exchange rates. The so-called Jamaican monetary system remains operational today, at the moment virtually all countries are its participants.
The change in priorities was influenced by the Smithsonian agreements, whose task was to protect the world economy from possible, protectionist intentions of the hegemonic countries. Then there was a sharp transition from the gold-dollar standard to a simple dollar standard.
Based on the agreement, all currencies were equated to the dollar, and the US national currency itself depended on the economic capabilities of the state. Twelve months later, the Smithsonian system shattered with a bang and crash. The reason was the undervalued foreign currencies, as well as the overvalued dollar.
In the ups and downs of the global economic system, you can understand thousands of hours and waste tons of text, but let's get back to the forex market.
The principles of a market economy have significantly influenced the rates of national currencies. Now changes in the production / extraction of strategically important items directly affected the value of their money.
At the moment, all forex exchanges are internet platforms. They differ in both functionality and capabilities. For example. Since the 90s, currency exchanges that use exclusively arbitrage trading have gained popularity in the CIS countries. Many people tried to make money by buying and reselling currency. But the specificity lies in the fact that the “methods” of buying and selling national money differ from shares and similar assets. Let's take a closer look.
Forex platforms for average users are places where you can buy currency, and if the rate fluctuates successfully, it is more expensive to sell it. How beneficial is this method? Statistics answer the question better than any words. Since there is simply no jumble of titanic proportions, it is impossible to make a large sum in one or two transactions. But if you quickly monitor the market, get acquainted with economic trends, you can multiply your savings several times.
True, the real popularity and fame of “one of the most profitable exchanges” came after the active use of short-selling (short deals). It is popular with large "players", as it requires the initial availability of large amounts. Additionally, you need to have both broadband Internet and the ability to conclude deals anywhere in the world. The method is to use the time difference. Since the money in banks is “circulated” only during working hours, they do not work in the evening. But if it’s night now, somewhere else it’s the height of the working day. And funds may be needed there, and not for a long time.
If the deals were successful, then the broker multiplied the allocated amount, and also earned interest literally out of thin air. But if he “loses”, money will sink into oblivion, as well as, possibly, a career.
In turn, there is not much to say about arbitrage trading. It follows the buy cheap, sell high principle. In simple words — this is a classic stock exchange "game" for a rise / fall. If you predict the development of an event, a change in the rate of a particular currency, the broker has a chance to get rich on the price difference. This is what the main trading on Forex platforms is based on.
This system is relevant for both large and small sites. But they “live” not due to conditional attachment to currencies, but thanks to clients. If you are interested in the development of forex platforms, then pay attention to the next point!
At the moment, the Internet is full of many web resources offering the opportunity to “play” on Forex exchanges. It is not so important whether the auctions are taking place within one country or around the world. You can only compete with the leaders by offering a convenient, reliable web resource that can quickly mark changes in exchange rates, etc. But the technical condition and capabilities cannot always ensure popularity. There are many "hooks" for this, for example the initial $ 100 deposit, etc. But they only work from time to time, and they are designed for beginners who may not participate in the auction further.
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