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  • Forex History

    //Forex History
    Forex History2017-12-31T12:09:04+00:00
    FX being abridged state of Forex is composed of words of Foreign and Exchange in English and proved that it has taken its place as essentials of finance markets. Because becoming the greatest and fastest developing financial market with its trading volume of daily 5,5 trillion dollar has undertaken an important role in approaching persons to forex market. It is foreign Exchange market where the money of different countries are interchanged. Although Exchange between foreign currencies is taken basis in forex markets, this market has also the feature of entering trade to oil and various exchange markets except for valuable metals like gold, silver as a result of grabbing more attention than expected. Prices change more than 18000 times in day for most traded parities. As this price movements are relatively low (1 pip), the market works properly and becomes liquid.
    Foundation of the markets which are known as Forex today was laid in 1973. However exchange of one money currency to another one goes back to very old ages. Most dominant money in the world before World War Two was English pound. But pound lost its power during the combat of the English with Germans during World War Two. American dollar falling from its power with crisis 1929 has become most used currency up to present after American economy gained strength during World War two and The Unites States of America has become economic power of the world.
    Bretton Woods is a region of Carroll town in New Hampshire, a small state of USA. An agreement was signed following The United Nations Monetary and Financial Conference held here in 1944 and the system emerged with this conference was named as “Bretton Woods System”. 45 countries attended in the conference conducted in Mount Washington Hotel in Bretton Woods. International Monetary Fund (IMF) was accepted as central institution following the agreement signed at the end of this conference. The system established with the agreement is called “Gold Exchange Standard” as well. Bretton Woods system” , an adjustable fixed currency system has formed a gold currency Standard at the same time. Because USA Dollar linked to gold and other monies to USA dollar subsequent to this agreement. With this agreement, 35 $ was equalized to fixed value of 1 ounce gold. The countries keeping American dollar could convert these dollars to gold by means of their central banks. Again, private persons holding American Dollar could convert these to gold in free market. Aim of Bretton Woods was to bring an order to provide stability to Exchange rate against short term fluctuations, hinder the emergence of devaluations in changes of Exchange rate. As per the agreement, IMF held responsible for continuance of this system according to the objective.
    On March 1971, European Commission accepted Werner Plan which would take the countries of the Common Market to economic and monetary union. Countries agreed to stabilize fluctuations of their own currencies between each other within the scope of Werner Plan. Exchange rate movements of European currencies lessened (snake), remained big relatively against Dollar too (tunnel) Therefore this system took the name of “snake in the tunnel”. In December 1971, the countries (Groups of Ten) comprising Belgium, Canada, France, Germany, Italy, the Netherland, Sweden, Swiss, England and USA convened in Smithsonian Institute in Washington and made Smithsonian agreement. With this agreement, value of USA Dollar was decreased 8% against monies of main foreign countries. But in short time, insufficiency of this devaluation rate in American Dollar appeared. New 10% devaluation was made on 12 February 1973 against speculative attacks to Dollar. However speculative movements were so extensive, foreign exchange market had to be closed between 1 March- 18 March 1973. When foreign Exchange markets were opened again on 19 March, Japan and main European currencies were left to free float against Dollar. Although this was considered as temporary arrangement in the beginning, a new period- period of flexible currency system started.
    Resolutions for decrease of dependence of currencies of European Community to American Dollar were taken in 1972 as well. The first initiative for that began with the formation of European Joint Float among the Netherland, Belgium, Italy, France, Western Germany and Luxemburg. The agreement gave possibility especially for float of Exchange rates in the range wider than that of Bretton Woods. Upon decline of Bretton Woods system and Smithsonian Agreement, European countries coming together again on April 1972 agreed upon that range of the snake is ± %2,25, range of the tunnel is also ± %4,50. Various relevant arrangements was done between 1973-80 with adjustment of Exchange rate. In December 1978, European Board accepted establishment of European Monetary Union to be valid from March 1979. In 1979, European Currency Unit (ECU) was described. Euro substituted ECU as from 1 January 1999. Finally, variable currency system has enabled change of money value according to basic supply and demand rules. Today forex market is the most liquid and biggest market of the world. Inter-bank market forms great part of speculative and trading density every day. A big bank can trade in billion dollar level daily. Some part of these trading are realized for customers, but its great part is conducted its own accounts and shareholders of banks. Until recently forex brokers traded, meeting anonymous parties in return for trading in big volumes, inter-bank trading and small fees. Today, this system is operated by electronic systems having a perfect functioning completely. Thanks to this technology, trader can execute his/her all trading and make buy-sell in speeds which are measured with miliseconds.
    One of most significant parts of this market is also the companies making buy-sell of foreign exchange for services and goods they receive. When compared to banks, international companies make buy- sale in smaller volumes, mobility pertaining to companies has an impact on markets and market rates in short time.
    National central banks play an important role in forex markets. Central banks try to bring money supply, inflation, interest rates and ratios of official and unofficial currency units under control.
    Investment management firms (in general controls big accounts of their customers, for instance retirement funds and foundation incomes) utilize forex markets to facilitate trading of buy and sell. Some fund management firms seek purpose of obtaining profit, making speculative trading through risk limitation method with the accounts belonging to its customers. Trading in this manner is quite low and most of them have big asset managements and so can reach wide trading (buy-sale) volumes.
    Hedge funds gained importance due to aggressive parity speculations from 1996 until now. Hedge funds control equities over billion dollars and have debiting in level of billion dollars, so can support nearly every parity with central bank if economic balances slip to hedge funds.
    Two kinds of forex trader are found: brokers giving the possibility of speculative buy –sale and the brokers making physical delivery, for example transfer of purchased parity to the account of another bank.
    • While daily trading volume in NYSE, USA Stock Exchange is around 25 Billion Dollar, daily average trading volume in Forex market is 5,5 trillion Dollar.
    • Only 5% of daily trading volume in Forex markets is consists of the trading made by governments and firms. The remaining trading is carried out with speculative purposes.
    • 80% of the positions opened remains open shorter than 7 days.
    • 40% of the positions opened remains open shorter than 2 days.
    • 85% of trading performed is realized in major parities.
    • 28% of trading carried out is realized in EUR/USD parity.