Forex Fanatic

The Bretton Woods Convention, established in 1944, aimed to install an international monetary stability while avoiding the theft of money between nations, and restricting speculation currencies in the world. Before the Convention, the gold exchange system, which reigned between 1876 and World Wars, dominated the international economic system.

Under the system of exchange in gold, currencies earned a new phase of stability since they were approved by the gold price. This abolished the practice used by ancient kings and leaders of arbitrarily reduce the value of money and cause the inflation.

But the change in the gold system despite its advantages it had weaknesses. While an economy was strengthened, this imported too many services and products from the outside which caused it to exhaust its gold reserves required to cover its money. As a result, the money supply was reduced, interest rates rose and economic activity decreased to the point that recession was caused. In the long term, the commodity prices had reached their lowest point, being appealing for other nations. This forced the excessive purchase and injection of gold in the market until it increased the money supply, lowering interest rates and creating wealth in the economy. These systems oscillating both upward and downward prevailed during the period of exchange rate system or until the beginning of the First World War, which interrupted the flow of trade and free movement of gold.

After the Wars, the Bretton Woods Convention was concluded, in which participating countries had decided to try and maintain the value of their currency with a narrow margin in comparison with the U.S. dollar and a corresponding rate of gold, according to need. It banned the practice of countries devaluing their currencies to the benefit of their trade and they were only allowed to do so in the case of devaluations of at least 10%.

In the 50s, the volume of the international commerce in constant expansion produced massive movements of capital products due to the posterior reconstruction of the war, which destabilized the rates of change that had been established by the Convention of Bretton Woods.

The Convention was finally abandoned in 1971 and the U.S. dollar would no longer be convertible into gold. In 1973, the currencies of major industrialized nations began to float with more freedom, controlled primarily by the forces of supply and demand which acted on the foreign exchange market. The daily prices were fixed at an exchange rate free, with increased volumes, speed and volatility during the 70 years, giving rise to new financial instruments, market deregulation and trade liberalization.

During the decade of 80, the movement of capital across borders had accelerated with the advent of computers and technology, expanding the market continuity through time zones of Asia, Europe and America. The currency transactions have been increased from around US $70 billion per day in the mid 80’s, to more than $ 2.5 trillion daily, two decades later.

The Forex market was many times restricted for large investors and financial institutions. The privilege of compromising currencies was reserved for large banks and very few investment professionals. The case with George Soros, earning almost one billion U.S. dollars in just a few days of operations on the British Pound (GBP), is famous.

Previously, the only way individual investors could had to enter the FOREX market was through banks, which operate with large amounts of currencies with the purpose of trade and investment. The operating volume has increased rapidly over time, especially after it has allowed the exchange rate float freely in 1971. The combination of a low margin and a large multiplier effect has changed the manner in which it operates on interbank market currencies. It won the opening doors to individual investors in democratizing the foreign exchange market, offering them the tools and professional services needed to operate effectively in an independent atmosphere.

The market is now available for any individual investor and for all institutions. Today, thanks to the Internet and brokers “on line”, have revolutionized the whole atmosphere from 1995, and opened the doors of the global market currencies for all those who want to take part. The ability to receive news, courses and other necessary information through the network, allows anyone to be in conditions to take part in this market.