Evolution of Forex Trading

The earliest signs of the market system at work can be seen with the advent of bartering within tribes as far back as 6000 B.C. in Mesopotamia. If Tom had twenty cows and Igor had eighty hens, and Tom and Igor agreed that one cow was worth four hens, then the trade could take place. The problem with the barter system, however, was that in order for a trade to take place, both parties had to want what the other party had. This ‘co-incidence of wants’ often did not happen. The demands of growing business and trade caused a money system to be developed. Silver rings or bars are thought to have been used as money in Ancient Iraq before 2000 B.C. Early forms of money would usually be specie, or commodity money. Examples range from seashells, to tobacco leaves, to large round rocks, to beads.
While the money system still had much development to go through (credit and paper money did not yet exist), its invention over four thousand years ago was of crucial importance to the world we live in today. The use of an accepted medium to store value and enable exchange has greatly enhanced our world, our lives, our potential, and our future.
In the year 1100, the prevailing system in the Western World was feudalism. Three hundred and fifty years later, after weathering a Black Death and the Hundred Years War, Europe emerged by expanding trade to new levels and building the foundation for the start of the competitive market economy we know today.
The world would soon see, however, that innovation was generally a good thing that made lives better than before and that efficiency was a path toward a higher standard of a living. As Robert L. Heilbroner says in The Worldly Philosophers, “The precapitalist era saw the birth of the printing press, the paper mill, the windmill, the mechanical clock, the map, and a host of other inventions. The idea of invention itself took hold; experimentation and innovation were looked on for the first time with a friendly eye.”
Fortunately for Europe, new schools of thought sprung up in the 18th century that promoted commerce, and not the hoarding of gold, as the source of wealth. Adam Smith further backed this idea and was the first to capture and explain the essence of the marketplace. He did so in his famous 1776 work An Inquiry into the Nature and Causes of the Wealth of Nations, slaying the mercantilist dragon in the process. Within, Smith outlines certain laws of the market, which are worthy of mention.
The forex market developed out of the need to exchange funds from currency to currency. While the U.S. dollar was pegged to the price of gold—until the late 1970s—and many other major currencies were pegged to the U.S. dollar, the market remained fairly stable. But “once the peg had been removed, currencies started moving against one another,” Hawkins said.