Forex or foreign exchange is the exchange of currencies. In essence, the foundation for Forex trading lies in the Barter system. The Barter system existed before money was developed. This was the time when the value of a good was expressed in terms of another good instead of money. It was the exchange of one good for another.
The Barter system had a few disadvantages which eventually led to the development of money to express the value of goods. One of the main disadvantages of the barter system was divisibility. For example, if an exchange needed to be made between a pig and hammer, it was impossible for the owner of the pig to determine how much of his pig was worth one hammer. For sure, he would not have been willing to exchange his entire pig for a hammer. Even if he decided to kill his pig and exchange one of its legs for the hammer, he was stuck with the rest of the pig. He had no means of storing the rest of the pig nor was it always easier to find others who were willing to exchange their goods for his pig. Initially, gold and silver coins were used as money but eventually, the Babylonians introduced the use of paper notes. The history of Forex trading can therefore be traced all the way back to the time of the Babylonians. Different currencies existed during the time of the Babylonians as well as the need to exchange them.
There was little speculation in the Forex market from 1931 to 1973 due to a series of global economic changes. However, in the 1970s, the method used to conduct trading in the Forex market was revolutionized by innovative technology. The advent of the Internet changed the way trading was conducted in the Forex market forever. With Online Trading Forex , the Forex market was no long opened for only banks, corporations, multinationals or large financial institutions. It was opened for anyone.
A computer with a fast and reliable internet connection became all that is needed in order to exchange currencies.
During the last few decades, online Forex trading has developed into the largest global market in the world. On a daily basis, approximately 1.9 trillion dollars are traded thus making the Forex market the largest financial market in the world.