Forex Trading

The foreign exchange market, also known as the forex market or the FX market, refers to trading one currency for another. It is by far the largest market in the world.

Historically, currencies were backed by gold. This prevented the value of money from being debased and inflation. However, the Bretton Woods Agreement replaced this gold standard after the Second World War, which aimed to prevent speculation in currency markets by fixing all currencies against the US dollar and making the dollar convertible to gold at a fixed rate of US$35 per ounce. Under this system, countries were prohibited from devaluing their currencies by more than 10%, which they might have been tempted to improve their trade position, i.e., exports.

The growth of international trade, and increasing pressure for the movement of capital, eventually destabilized this agreement, which was finally abandoned in the 1970s. Currencies were allowed to float freely against one another, leading to the development of new financial instruments and speculation in the currency markets.