Blog

Trading guides, webinars and stories

Currency and the Forex market

Currency - Forex market
F T L
2 minute read

A brief history of currency:

In the early days of currency’s existence, the value of the currency was reflected entirely in the coin’s metal. This would be in the form of gold and silver in most cases. From here it is only natural that traders would develop early Foreign Currency Exchange. A coin that was larger or made of more precious materials of one country would obviously hold more value. This would cause traders to learn and rely on understanding what different coins are worth in relation to each other. This system is referred to as “commodity currency”, since the commodity is the currency itself.

This origin of commodity currency then leads to the invention of paper and coins that have minimal inherent value called “representative money”. It is tied to a fixed amount of reserve precious metal, usually gold. More recently even this has changed since the gold standard was abandoned by America in the 1970s. Currency value in the USA now floats; a system that is referred to as fiat currency.

 

The Forex Market:

The Forex Market is widely traded due to its ease of trading. Currency is, by definition, the most liquid asset. The advantage to this is simpler trading with lower costs. Part of the lower cost comes from not paying a fee to an exchange to facilitate the trade. Forex is considered “Over the Counter” because it is a direct exchange between two parties, without the need for an exchange.

There are many currencies that are important in Forex, but certainly the most important one by far is the US Dollar. Over 80% of Forex trading involves the USD on one side of the trade. Other important currencies in order of trading volume are the Euro, the Japanese Yen, British Pound Sterling, the Australian Dollar, the Canadian Dollar, the Swiss Franc, and the Chinese Yuan.

Check out Earn2Trade’s educational content for all the details, including what pairs are typically traded and how to best succeed in this market. Daily trading exceeds $5 trillion USD. Certainly enough room for you to find your place, and your profit!

Related Articles

British Interest Rates

The Birth of Index Funds

The Silk Road