In this lesson, we will explore the evolution of the FX market in recent years.
Prior to 1996, the forex market was predominantly accessible to large financial institutions, central banks, corporations, governments hedge funds and very wealthy individuals.
Participation in the forex market was quite challenging because you needed substantial balances to generate significant profit.
To capitalise on fluctuating exchange rates, individuals had to maintain multiple bank accounts, each one denominated in a different currency and transfer funds between these accounts. This process could be inconvenient as FX transactions could take up to three working days to clear. Given the dynamic nature of the FX market, a lot could change in three days, turning profitable positions into losing ones. In some countries, government permits were necessary to convert local currency into foreign exchange. Even when transactions occurred, banks often charged a high fee for their services, reducing any potential profit. Additionally, the flow of timely information was not straightforward, requiring several working days to get international financial news. So, by the time individuals reacted to certain events, market conditions would have already changed.
In 1996, forex trading started becoming more accessible to individuals due to the development of internet-based trading and the introduction of margin trading. The steady improvement in PC capabilities allowed for practically instant trading.
Today, you can now trade currencies within seconds, with a simple click of your mouse and by committing only a small percentage of the total investment amount.
This type of trading is known as retail FX trading and in our next video we’ll discuss CFDs.
