Forex or Foreign Exchange is simply the global market that deals in the exchange of various foreign currencies between the large International Banks. Hence, it is also sometimes called as the Interbank Market due to the major participants in foreign exchange being the banks around the world. Nevertheless, most forex traders know it to be an extremely mundane market place with no room to breathe due to the high level of risk and analysis involved. Even the people who aren’t familiar with the forex trading business know it to be a really boring activity with nothing interesting. Contrary to this notion, if we move back in the history of foreign exchange we might see a lot of amazing facts and information that makes it a rather ancient tradition. Listed below are some of the most interesting facts about foreign exchange or forex.
- The first written evidence of currency exchange is mentioned in the Talmud writings and the bible, when Jesus drove away the merchants and the Money Changers from the Temple in Jerusalem. The money changers were foreign exchange brokers who changed Greek and Roman money for Jewish money. Currency rates, like today were fixed on the quantity of a standard like gold or silver.
- The Byzantine Empire kept a governmental domination over the exchange of currencies in the 4th century AD. Both the internal and external trade was controlled by the state with a monopoly in issuing of currency and 3. Founded in 1472, Monte Dei Paschi di Siena is the world’s oldest surviving bank and is also the 3rd largest bank in Italy. The 500 year old bank was founded by the Magistrate of Siena and has more than 3,000 branches across Italy.
- To facilitate trade during the 14th century, the Nostro account book which shows the amounts of the various foreign currencies against the local Italian currency. It was drafted by the Medici Family who were a prominent banking and royal dynasty that opened the largest bank in Europe during the 15th
- Modern forex was first said to have taken place in the 19th century in the USA, when foreign currencies were traded by the banking firm Alex. Brown & Sons. The bank remains the first investment bank in the US and was acquired by the German, Deutsche Bank in 1999.
- The gold standard for foreign exchange was first introduced in 1821 under the British Empire and was soon accepted in the other developing countries like Canada, US, Germany, Australia and New Zealand.
- Before the outbreak of the First World War, the British Pound Sterling remained the most traded currency making up for more than half of the total exchanged currencies around the globe. There were a total of 3 foreign exchange brokers in London in 1806 which increased to 71 by the year 1913.
- The tides soon turned when trade centers were shifted to Paris, New York and Berlin in 1914 while Britain remained largely uninvolved in trade.
- Before 1908, individual banking institutions in the US could create and issue their own currencies. This practice was put to a halt with the creation of the Federal Reserve which saw the rise of US as a major global economy.
- The year 1954 saw the rise of Japan as a global economic power, when several changes were made to the forex laws. This made Tokyo the centre of forex market between 1954 and 1959 and led many people to open forex account.
- After the financial collapse following the Second World War, the US dollar was chosen to be a reserve currency by the developed nations and by the end of the 20th century Dollar became one of the most widely accepted currencies across the globe.
- The year 1973 saw the arrival of computerized monitoring system which replaced telephone and telex as the preferred technology to share and obtain trading quotes.
- Before the mid-1990s, only banks and institutions that could pull over $40-50 million in liquidity were allowed to participate in forex trade. The spread of internet in the late 90’s helped forex trade become accessible to millions of small time investors across the globe.
- Forex market unlike stock exchange runs 24 hours during the day and is only closed during the weekends. This allows for a wider possibility of trade anytime during the day.
- Prior to optical fiber technology and communication satellites London and the New York Stock exchange were connected through a steel cable laid under the Atlantic.
- The daily volume of forex trades is 53 times higher than that of the New York exchange and is 4 times the global GDP. The US dollar remains the most popular currency and is involved in almost 87% of the total trades that take place.
- More than 90% of all forex trades end in losses. In a study by Dr. John Forman, it was revealed that almost 99.6% of all the retail forex traders are unable to make more than 4 back to back quarters of profit.
- More than 70% of the global forex trade is shared by UK, US, Japan and Singapore. UK accounts for 47%, US accounts for 40% and Singapore accounts for 44% of the total trades across the globe.
- The top 10 traded currencies include
- US Dollar – 87%
- Euro – 33.4%
- Japanese Yen – 23%
- British Pound – 11.8%
- Australian Dollar – 8.6%
- Swiss Franc – 5.2%
- Canadian Dollar – 4.6%
- Mexican Peso – 2.5%
- Chinese Yuan (Renminbi) – 2.2%
- New Zealand Dollar – 1.4%
20. Being the most liquid market in the world, there is no central bank for foreign exchange and the currency is kept floating and the rates are generally set by Market Makers.
