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Understanding the Forex Market: It’s Past, Present, and Future

By Megan Doyle

The Foreign Exchange (forex) Market is the largest financial market in the world. Crucial to conducting international business, it’s used daily by governments, banks, businesses, and individuals. According to the Bank of International Settlements (BIS), in April 2016 trading on forex markets averaged $5.1 trillion per day1 – 27 times larger than the equities (stock) market and four times larger than the entire global GDP.2

But few people fully understand what the forex market is, how it works, and how the latest technologies are causing it to evolve. While foreign currency exchange rates were once periodically established by governments, the modern forex market is run by a decentralized global network of brokers and traders linked by advanced technology and communications networks. As globalization and technological advancements continue to facilitate cross-border business, improvements in the forex market have helped organizations of all sizes learn to manage their own FX risks and cash flow.

 

This seven-part series examines the forex market by chronicling its deep history from inception through modern times. The series culminates with explanations on how to use basic and complex forex charts, as well as forex technical analysis.

 

Part 1: What is the Forex Market?

 

The international forex market is used daily by businesses around the world, helping them trade in multiple currencies, hedge against foreign exchange risks, or even simply exchange currency for an international sales trip. Part 1 explains what the forex market is and how it works.

 

Part 2: Forex History: How the Modern FX Market was Born

 

The significance of today’s forex market makes it seem like it’s been ubiquitously used for ages. In reality, it’s fairly new. Part 2 explores the history of the forex market: its early roots in gold, why the system changed dramatically in the late 1960s and early 1970s, and how it has since evolved into a technology-based market that embraces sophisticated online tools and services.

 

Part 3: Online Forex Trading: The Fintech-FX Connection

 

In the past, forex trading was dependent on banks, dealers, telephone calls, and paper confirmations. Today, online platforms allow any corporation or individual to execute trades and obtain real-time price quotes. Learn how technology has transformed the forex market since the 1980s, helping businesses learn to better manage their own FX risk and liquidity.

 

Part 4: Robots and Automated Forex Trading

 

Technological advances lead to a new form of forex trading, enabled by the internet’s pervasiveness. Forex robots and automation levels the FX playing field, allowing anyone to participate in the market alongside financial institutions and professional traders. But businesses using forex automation may still wish to keep a close eye on automated processes, as risks often go hand in hand with rewards.

 

Part 5: The Forex Economic Calendar and How to Use It

 

Exchange rates are not only affected by worldwide events, but also by the anticipation of those events. Forex traders often use economic calendars to predict how rates will respond to upcoming political, economic, and social events. Learn how businesses can use forex economic calendars to help them forecast FX movements and make more informed FX decisions.

 

Part 6: How to Read a Forex Chart

 

Businesses no longer need to obtain currency exchange rate information from banks via telephone. Instead, online forex charts are freely available to the public. While seemingly complex at first glance, forex charts can provide a wealth of currency insights to international businesses and forex traders alike. Part 5 shows how to read and understand forex charts – a possibly essential skill for those engaging in cross-border business.

 

Part 7: An Introduction to Forex Technical Analysis

 

Basic forex charts may provide enough information for quick reference, but detailed technical analysis can help enterprises use historical exchange rate patterns to better predict future rate movements. While this deeper level of understanding often calls for strong mathematical skills, Part 7 demonstrates how many forex charts provide preset technical analysis indicators and FX commentary to help users better understand past, present, and future exchange rate movements.

 

Megan Doyle - The Author

The Author

Megan Doyle

Megan Doyle is a business technology writer and researcher based in Wantagh, NY, whose work focuses primarily on financial services technology.

Sources

1. “Triennial Central Bank Survey of OTC and Derivatives Markets in 2016,” Bank for International Settlements; https://www.bis.org/publ/rpfx16.htm
2. “Forex trading industry statistics,” Broker Notes; https://brokernotes.co/forex-trading-industry-statistics/

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