History of Forex

Bretton Woods Agreement

In 1967, the Chicago Bank refused to make a loan in pounds sterling to Professor Milton Friedman, who planned to use the funds to sell British currency. Friedman believed that sterling was overvalued against the dollar and intended to sell the currency and then buy it back at a lower rate to repay the loan and make a profit. The bank’s refusal was based on the provisions of the Bretton Woods Agreement, made twenty years earlier, which fixed exchange rates against the dollar, and the dollar against gold, set at $35 per ounce.

The Bretton Woods Agreement was signed in 1944 to maintain financial stability in the world by limiting capital flows and currency speculation. Prior to this, from 1876 until World War I, the international economic system was based on the “gold standard,” in which currencies were tied to the price of gold. This provided stability by eliminating the practice of currency devaluation and inflation.

However, the gold standard had its drawbacks. Economic growth in one country increased imports, which reduced its gold reserves and reduced the money supply. This raised interest rates and slowed economic activity until a recession hit. Then prices fell, goods became attractive to other countries, causing gold to flow in, increasing the money supply and lowering interest rates, contributing to an economic recovery. Such cycles dominated until World War I disrupted trade flows and the free movement of gold.

After the two world wars, the Bretton Woods Agreement was established whereby countries pledged to keep the exchange rates of their currencies within narrow limits relative to the dollar and gold. Devaluation of currencies to gain trade advantages was forbidden, except up to a maximum of 10%. In the 1950s, with the increase in international trade brought about by the post-war recovery, there were significant capital movements that destabilized the exchange rates set at Bretton Woods.

In 1971, the agreement was finally abolished and the U.S. dollar was no longer convertible into gold. By 1973, the currencies of the major developed countries began to float freely, controlled by supply and demand in the international foreign exchange market. Trade volumes, speed and price volatility increased substantially in the 1970s, leading to the creation of new financial instruments and trade liberalization.

In the 1980s, with the advent of computers and new technologies, international capital movements increased, blurring the boundaries between Asian, European and American time zones. Trading volume in the international foreign exchange market grew from about 70 billion dollars a day (in the 1980s) to over 1.5 trillion dollars a day two decades later.

Euro market

One of the main catalysts for the development of the international foreign exchange market was the rapid expansion of the Euro-dollar market, where U.S. dollars were deposited in banks outside the United States. Other Euro markets developed in a similar manner when currencies were deposited outside their country of origin. The Euro-dollar market emerged in the 1950s when the USSR deposited oil revenues in dollars outside the US for fear of the US authorities freezing the accounts. This contributed to the significant growth of dollars out of U.S. control. The U.S. government enacted laws restricting the lending of dollars to foreigners. Euro markets were particularly attractive because of less regulation and higher returns.

Beginning in the late 1980s, U.S. companies began borrowing abroad, finding the Euro market advantageous for placing excess liquidity, obtaining short-term loans, and financing foreign economic activity. London was and remains the main center of the euro market. In the 1980s, British banks began actively providing dollars as an alternative to pounds in order to maintain their leading position in the global financial market. London’s convenient geographical location, allowing it to work with both Asian and American markets, also contributed to its dominance in the euro market.

The whole truth about earning on Forex: myths and reality

All newcomers, who encounter the currency market for the first time, reading warnings about high risks on the websites and banners of licensed brokers, ask themselves reasonable questions: is it really possible to make money on Forex, if such a large percentage of traders lose their deposits? Is it possible to double or triple the initial investment in a short time? How many months or even weeks could it take? Is it not a myth?

As in any other profession, not everyone will be able to earn a lot and successfully in Forex. Just like not everyone who decides to go into business will become the owner of Amazon or Apple. Success is a combination of talent, predisposition, luck and considerable labor. Gains are interspersed with losses, so it’s important to have patience, foresight and stress tolerance.

But the good news is that the answer to the question “can you make money in Forex” is positive. Everyone, regardless of education and abilities, with due diligence can achieve success. This process will be long, involving losses and disappointments, but it is not a myth. You will need a trading strategy, starting capital, access to a training platform and a reliable broker to get started.

Now let’s look at the myths about Forex trading that can scare newbies away or create false expectations. Let’s see where the truthful information about the foreign exchange market is and where it is not.

Myths about making money in Forex

There are many misconceptions about the workings of the currency market and the possibilities of making money on it. Some people think that after opening the terminal they will immediately find themselves on the beach with a cocktail, others think that trading is a fraud, similar to a casino. These extremes are self-deception. Let’s analyze the main myths about Forex and their mistakes.

Myth 1: “Forex is a quick way to get rich”.

This is probably the most common myth that has disappointed many traders. Forex liquidity does allow you to build up your deposit quickly, but the risks of loss are also high. There is no 100% working strategy – the same events can lead to opposite market reactions. It is important to understand how the Forex market works from the very beginning.

Currency quotes are formed in real time based on supply and demand, which depend on news and events. A trader analyzes the market, predicts the growth or fall of a currency pair and opens buy or sell transactions. No one can predict the further development of events with high probability, so experience and protective orders limiting losses and fixing profits are the basis of successful trading.

Myth 2: “There are no risks in Forex trading”.

Wherever money is involved, there is a risk of loss. Moreover, the higher the expected profits, the higher the risks of total loss of investment. Foreign exchange rates are constantly changing due to many factors, including economic news and political events. Fluctuations in exchange rates can be significant, and not always the result coincides with forecasts. Trading with leverage increases risks, as losses are covered by the client’s funds. Therefore, it is important to understand the risks and manage them competently.

Myth 3: “All you need is luck”.

This is the main misconception of lazy traders. Luck plays a role, but knowledge, tactics and discipline are more important. Success in Forex depends largely on understanding market trends, the work of economic indicators and factors affecting exchange rates. Training and constant updating of knowledge help traders make informed decisions and reduce the influence of luck on trading results.

Reality: How you can make money on Forex

The realities of the currency market are different from the myths. Let’s see what you should actually pay attention to and prepare for when opening your first trades.

Reality 1. “Training and practice are required”

Forex is a complex and dynamic market where training and practice are important. Initial training is necessary to understand the principles of the market and the use of the terminal. Practice on a demo account helps to practice skills and develop confidence in your actions.

Even experienced traders continue to learn, test new strategies and adapt to market changes. It is important for beginners to be ready for constant development and training, which increases the chances of successful earnings.

Reality 2. “Psychology plays a key role”

Psychology is important in trading. Only a “cool head” allows you to conduct trades according to the rules of the strategy, avoiding emotional decisions that can lead to losses. Successful trading requires controlling emotions, training discipline and patience, and analyzing your mistakes and successes.

Reality 3. “Work and patience lead to success.”

Forex trading requires diligence, patience and constant work. For most beginners, the initial stage is fraught with losses, but diligence helps you not to give up and develop skills. Creating and adapting a trading strategy takes time and constant work. Managing emotions and continuous self-development are key elements to long-term success.

Conclusion

Is it possible to make money in Forex? Absolutely. Everyone who is motivated, efficient, stress-resistant, disciplined and capable of learning can become a successful trader and make money on currency exchange rate differences. It is important to rely on the realities of the market, avoid myths and choose a reliable broker. Ready to start today? Open your first demo account and take your first steps towards professional trading!