Any introduction to Forex trading must contain a bit of history.

The creation of the gold standard monetary system in 1875 was extremely significant in the history of the Forex currency market. Countries attached an amount of their currency to be equal to an ounce of gold; the changing price of gold between two currencies became the first standardized means of currency exchange in history.

The gold standard broke down in World War I because the major European powers did not have enough gold to exchange for all the currency that the governments were printing off at the time in order to complete large military projects. The gold standard began anew between the wars, but it was dropped again by the start of WWII. Gold never lost its spot as the ultimate form of monetary value.

1944 saw the implementation of the Bretton Woods System which led to the formation of fixed exchange rates resulting in the U.S. dollar replacing the gold standard as the reserve currency. Thus, the U.S. dollar became the only currency that would be backed by gold. 1971 marked the end of this system when U.S. declared that it would no longer exchange gold for U.S. dollars that were held in foreign reserves. This led to the almost global acceptance of floating foreign exchange rates in 1976 effectively producing the current foreign currency exchange. It became electronically traded only in the mid-1990s.

Introduction to Forex Trading

This introduction to Forex trading is the first lesson in our FXAcademy tutorial. Throughout our online courses, we will be teaching all about Forex trading, which has become a very popular money-making vehicle.

Since Forex trading has become so popular and there are Forex brokers advertising their services all over the web, traders should understand as much as they can about Forex trading before choosing a Forex broker. The term “Forex” is short for foreign exchange market, which is the “place” where different currencies are exchanged in a continuous fashion by millions of people all over the world.

It isn’t difficult to conceptualize about Forex trading. Tourists who travel from one country to another must exchange currencies in order to pay for a local product or service. A wad of Euros would be totally useless to an Italian tourist wishing to visit the Sphinx in Egypt because it is not the locally accepted currency. The tourist would have to exchange his Euros for the local currency, Egyptian pounds, at the existing exchange rate that day.

Even without knowing much about Forex trading, residents of one country exchange currencies with another country each time they purchase a foreign product. For example, someone living in the U.S. who wants to buy a nice bottle of French wine may pay for it in dollars but the wine has already been paid for in Euros. Somewhere along the line, either the wine producer or the American importer had to have exchanged the equivalent value of U.S. dollars (USD) into Euros. This is all about Forex trading.

Unlike the New York Stock Exchange or other stock markets, there is no central marketplace for foreign exchange. Rather, currency trading is conducted electronically over-the-counter (OTC), which means that all transactions occur via computer networks between traders around the world, rather than on one centralized exchange. The market is open 24 hours a day, five and a half days a week.

Another thing about Forex trading: The need to exchange currencies is the primary reason why the Forex market is the largest, most liquid financial market in the world. It outperforms other markets including the stock market, with an average traded value of around U.S. $2,000 billion per day. Being aware of the magnitude of Forex trading should be enough of an introduction to Forex trading to motivate the eager investor to plunk down his money and start to trade.

Traders can make a lot of money by trading on the Forex market. The more a trader knows about Forex trading, the more successful he will be. It’s really a very simple concept. In our next lesson at FX Academy, you will learn more about Forex trading and what exactly is traded on the Forex markets. Stay tuned.

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