Online forex trading has become one of the most popular investment vehicles of the 21st century, largely because of its accessibility and liquidity. A basic internet connection, laptop computer and online trading account are all that’s needed to access the world’s biggest and most liquid financial market.
However, there are several interesting facts about currencies and forex trading that many new and experienced traders don’t know. Below are just ten of them.
1. Currency exchange is an ancient practice
Contrary to what you might have heard, currency trading can be traced back to ancient times. Individuals known as “money-changing people,” who lived during Biblical times, helped others change money for a commission or service fee. That’s not much different from today’s foreign exchange market.
2. The modern foreign exchange began in 1880
Many historians argue that the beginning of the modern foreign exchange market was in 1880, the year in which the gold standard was introduced. The gold standard would remain a critical part of foreign exchange policy until 1971, when it was eliminated by US President Richard Nixon.
3. The US dollar dominates retail forex trading
Many traders know that the US dollar is the most actively traded currency on the market, but few realize just how much it dominates currency transaction. According to the Bank for International Settlements (BIS), the US dollar was on one side of 87% of all trades as of April 2013.
4. US “paper money” was created to make up for coin shortage
US “paper money,” which is actually made from cotton rather than paper, was introduced by the Treasury Department during the Civil War in 1862 to make up for the coin shortage. Coins were in very high demand during this period because they contained valuable metals that could be used to hedge against money fluctuations caused by the war.
5. Most retail currency trading happens online
Accessibility is one of the biggest reasons why forex trading is so popular today. It therefore comes as no surprise that most of the retail currency exchange happens online rather than on trading floors. While there are a multitude of brokers around, finding one with a decent track history is not so easy. Check out easyMarkets who’ve been in the business longer than most.
6. Forex is a $5.3 trillion per day market
That’s right: daily turnover in the foreign exchange market averaged $5.3 trillion as of April 2013. That represents an increase of 33% over three years.
7. Banks are the biggest players in the forex market
Banks play a massive role in the global foreign exchange market. Not only do they hold and buy foreign exchange on behalf of their clients, they also use client deposits to make their own investments. As a result, around 70% of all daily forex trading is executed by banks.
8. Most retail currency trading happens online
Accessibility is one of the biggest reasons why forex trading is so popular today. It therefore comes as no surprise that most of the retail currency exchange happens online via virtual trading accounts rather than on trading floors. Discover online trading with a reputable, regulated broker.
9. The majors are the most profitable
Trading exotic currency pairs may be a worthwhile pursuit, but the vast majority of the gains in retail forex trading happen in only seven currency pairs, also known as the Majors. These currency pairs include: EURUSD, GBPUSD, USDJPY, USDCHF, USDCAD, AUDUSD and NZDUSD. More than 85% of price movement in the forex market happens in these seven pairs.
10. Half of global forex trading takes place in two countries
While forex trading has become a global phenomenon, half of the total trades take place in just two countries: the United Kingdom and United States. The UK is the major artery of the global currency trading system, accounting for 34.1% of the world’s forex trade. The US accounts for approximately 16% of global transactions.
Risk warning: Forward Rate Agreements, Options and CFDs (OTC Trading) are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you understand fully the risks involved and do not invest money you cannot afford to lose. Our group of companies through its subsidiaries is licensed by the Cyprus Securities & Exchange Commission (Easy Forex Trading Ltd- CySEC, License Number 079/07), which has been passported in the European Union through the MiFID Directive and in Australia by ASIC (Easy Markets Pty Ltd -AFS license No. 246566).