Trading Forex: Understanding The Basics, Part 1 by Imran Mukati
In this first part of a new series on foreign exchange trading, you’ll get an overview of the basics of trading currencies.
Forex, foreign exchange, FX — they all refer to the trading of, or exchange of, one foreign currency for another. While the practice began simply as one of many routine banking mechanisms, it has recently evolved into a speculative market — that is, some people and institutions trade currencies strictly to make money.
THE ADVENT OF FOREX MARKETS
From the 19th century until World War I, the economically developed nations of the world adhered to the gold standard. To simplify a complicated issue, a nation’s wealth depended on how much gold it possessed, because the currency of any nation on the gold standard had a set value relative to gold. The British pound, for example, was fixed at the equivalent of 113.00 grains of pure gold, while the US dollar was fixed at 23.22 grains.