Before the Forex market’s rise, a currency’s value depended entirely on the coin’s metal content. These were the early days of currency’s existence. They would be in the form of gold and silver in most cases. From here, it is only natural that traders would develop early the Foreign Currency Exchange. A coin that was larger or made of materials rare in their country of origin would obviously hold more value. This would force traders and merchants to learn and understand what different coins were worth compared to each other. This system goes by the name of “commodity currency” since the commodity is the currency itself.
This origin of commodity currencies then leads to the invention of paper and coins with a minimal inherent value. It’s what we commonly call “representative money.” It is tied to a fixed amount of reserve precious metal, usually gold. More recently, this has also changed since the US abandoned the gold standard in the 1970s. Following the Bretton Woods Conference, the currency value in the US now floats. It’s a system we refer to as fiat currency.
The Forex Market
The Forex Market enjoys a great deal of popularity 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 exchange to facilitate the trade. Forex is what we call an “over-the-counter” market because it is a direct transaction between two parties without the need for an exchange.
Many currencies are important in the Forex market, but the most important one by far is the US Dollar. Over 80% of Forex market trading involves the USD on one side of the trade. Other important currencies in the trading volume are the Euro, the Japanese Yen, British Pound Sterling, the Australian Dollar, the Canadian Dollar, the Swiss Franc, and the Chinese Yuan. Daily trading exceeds $5 trillion. Certainly enough room for you to find your place to try and profit!
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