Many people see Forex as a boring industry, one that demands the relentless task of heavy analysis, stress and risk. But look a bit deeper than the surface and what you see is an industry that takes its modern roots from deep history, crafted through those that have challenged and exploited rules, advancing with technology and littered with heroes and villains. The industry has a remarkable past, it is unequalled as a market in the present and who knows how it will look in the future. So with that said, here are 50 things that make this industry remarkable, exciting and most of all, fascinating!
Historical Currency Exchange
1. Currency trading is by no means a new idea, the first evidence of exchange occurred in ancient times. There were people known as ‘Money-changing people’, living in the times of the Talmudic writings (Biblical times) that were known for helping others to change money, taking a commission or fee for themselves. These people used city-stalls primarily, or the temples Court of the Gentiles at feast times.
2. During the fourth century the Byzantine government controlled a firm monopoly on the exchange of currency.
3. The world’s first real ‘bank’ was Monte Dei Paschi di Siena founded in 1472 in Tuscany, Italy, and is still in operation today.
4. The Medici family in the 15th Century, with the need to exchange currencies in order to act for textile merchants, were required to open banks at foreign locations. The bank created the ‘nostro’ account book – which taken from Italian means ‘ours’ - to facilitate trade. This account book showed amounts of foreign and local currencies in relation to the keeping of an account with a foreign bank.
5. During the 17th and 18th centuries, Amsterdam maintained an active Forex market. Exchange took place between agents and merchants acting in the interest of their respective nations, England and Holland.
The Roots of Modern Forex
6. In the USA, the firm Alexander Brown & Sons traded foreign currencies in and around 1850 where they were seen as a leading participant. Of the other pioneers of Forex in the USA, J.M. do Espírito Santo de Silva was given permission in the 1880s to begin to engage in the business of foreign exchange trading.
7. 1880 was the year in which the gold standard was introduced. For this reason, it is considered by many to be the year that signals the beginning of modern foreign exchange.
8. Between 1899 to 1913 foreign exchange holdings increased by 10.8%, while holdings of gold increased only by 6.3% which was symbolic of the importance of the emerging Forex market.
9. In 1902 there was a grand total of two London foreign exchange brokers.
10. By 1913, almost half of global foreign exchange was performed using the pound sterling. This was very influential on the changing shape of the UK capital, where the number of foreign banks operating in London increased to 71 by 1913 from a total of 3 in 1860.
11. While the Sterling was dominant in Forex trade, Britain itself was really not in the first few years of the 20th Century. The most active trading centres were Paris, New York and Berlin. London and essentially wider Britain, was relatively quiet in respect of trade until 1914.
12. Until the US Federal Reserve was created in 1908, individual US banks could create their own money.
13. During the 1920s foreign exchange, certain families started to emerge as leading figures. The Kleinwort family became respected market leaders and significant families such as the Japhets, S,Montagu & Co. and Seligmans started to take credit as major participants.
14. After WWII the Bretton Woods Accord was signed. This allowed for currencies to fluctuate within a range of 1% to the respective currencies par.
15. President Nixon is famously credited with ending the Bretton Woods Accord, as well as fixed rates of exchange. This eventually led to a ‘free-floating’ currency system. Adam Smith would be so proud
16. The Forex markets, surprisingly, were forced to close sometime during 1972 and March 1973 due to the ineffectiveness of the Bretton Woods Accord and the European Joint Float. Can you imagine this happening today?
17. The year 1973 marks the point at which the modern Forex market essentially began. This is the year where the restrictive bind of nation-state, banking trade and controlled foreign exchange ended and complete floating of market began.
18. Reuters introduced computer monitors in June 1973, replacing the antiquated methods of telephones and telex that had previously been the chosen technology for obtaining trading quotes.
19. In the mid 1980s, prior to the advent of the Internet, there was a form of electronic Forex trading in circulation, developed by Reuters and called ‘Reuters Dealing.’ By today’s standards the system is antique, but at the time this was very advanced. It was essentially a real-time closed network chat system. It would probably still be in use if the Internet had not been invented.
20. The table below shows the market share of the top 10 players in the global Forex market with only around 20% of the market left for other participants.
21. The GBP/USD currency pair is known as the ‘cable’. This is because prior to fibre optic technology and global communication satellites, the London and New York stock exchanges were connected via a giant steel cable, laid under the Atlantic. So if you think lag can be bad today, can you imagine what it would have been like if something ever went wrong with that cable?
22. More than $5.3 TRILLION are traded on the foreign exchange market each day.
23. Forex trading daily volume is about 53 times more than the New York stock exchange.
24. Forex trading daily volume is 4 times global GDP.
25. Of this figure, $2.2 trillion is in the form of FX swaps and $2 Trillion in spot.
26. The USD is the most popular currency; it’s involved in 87% of all trades.
27. Back in the mid-1990s, the Forex market was exclusive to banks and corporations that could pull together over $40 to $50 million minimum in liquidity. It was only with the arrival of the Internet and development of electronic, online platforms that the market was opened up to the wider audience of retail traders.
28. A recent research study undertaken by Ph.D. researcher John Forman, reveals that 99.6% of retail Forex traders are unable to achieve more than 4 back-to-back profitable quarters. Sound strategy or not, losses are apparently inevitable.
29. The UK, US, Singapore and Japan account for 71% of foreign exchange trading.
30. 60% of all Forex transactions are conducted in either the UK (41%) or the United States (19%).
31. The top ten traded currencies are: from highest to lowest percentage (As two currencies are involved in each transaction, the sum of shares in individual currencies will total 200%.)
1) U.S. Dollar with over 87% of the total volume
2) Euro (EUR 33.4%),
3) Japanese yen (JPY, 23%),
4) British Pound (GBP, 11.8%)
5) Australian Dollar (AUD 8.6 %),
6) Swiss Franc (CHF, 5.2%).
7) Canadian Dollar (CAD 4.6%),
8) Mexican Peso (MXN 2.5%),
9) Chinese Renminbi (CNY 2.2%)
10) New Zealand Dollar (NZD 1.4%).
32. The most widely traded currency pairs, from both the Majors and the Minors, are:
33. The 5 most popular cross rates, according to research are: EUR/JPY, EUR/GBP, EUR/CHF, GBP/JPY and GBP/CHF.
34. Some banks are known to allocate as much as 20-30% of their funds into the Forex market and generate between 40-60% of their total profits through trading currencies. This is by far their most lucrative endeavour.
35. Since the introduction of the Internet, the vast majority of all retail currency exchange happens online rather than on exchange floors. This allows for the market to be accessible to anyone in the world, regardless of location, as long as you have an internet connection.
36. There is no central bank in Forex, and the price of currencies essentially floats, with Market Makers setting exchange rates.
37. Forex is the most liquid market in the world.
38. Many are looking for the perfect trading system, which they call the ‘holy grail’. While many claim to have found it, none have yet passed the test of time.
39. Auto trading began in the Chicago mercantile exchange as early as the 1970’s but became common with retail trading around 1999 when online retail platforms started appearing.
40. With the introduction of Metatrader in the early 00’s, retail forex evolved once more, providing the ability for traders to write their own Expert Advisers and signals in an open platform.
41. There’s no crisis in the Forex markets. An economic crisis can actually be the best time for forex traders as money can be made in both rising and falling economic situations. All that is needed are rate fluctuations, not growth per se.
42. In 2008, Zimbabwe experienced the worst inflation of currency in history of 6.5 sextillion percent. Not a good day for trading the ZWD.
43. With the $5.3 Trillion traded each day, you could pay off the USA national debt in 3 days.
44. If you spent one dollar every second around the clock, it would take you 31,688 years to spend a trillion dollars.
45. To Spend $5.3 Trillion in that case would take you 126118.24 years.
46. That is enough to buy 87 Million season tickets for the most expensive seats for every football team in the English Premier Divison.
47. or enough to buy Lionel Messi, the world’s most expensive football player valued at $329,537,041.80 (250 Million Euros) 12077.5 Times.
48. At a price of $23,810 each, $5.3 Trillion could purchase a Prius car for every American family. Twice.
49. Or you could declare world dominance and hire 301 million soldiers, based on the fact that the annual basic pay for an active-duty U.S. private with under two years of experience is $17,611 a year.
50. Forex is the only truly global market that never sleeps, except at weekends.