Forex Before and After 1996
In this lesson, we will discuss the significant changes in the FX market over recent years.
Before 1996
Prior to 1996, forex trading was mainly limited to:
• large financial institutions
• central banks
• corporations
• governments
• hedge funds, and
• very wealthy individuals.
Several factors made it very difficult for the average person to participate in forex trading:
• Large capital was needed to make significant profits.
• Traders had to maintain multiple banks accounts in different currencies and transfer
funds from one account to another.
• Currency conversion could take up to three working days, during which market
conditions could change significantly, turning potential profits into losses.
• Some countries implemented exchange controls on the purchase and/or sale
of currencies.
• Banks often charged high fees for their services, reducing any potential profits.
• Access to international financial news was slow, which delayed traders’ responses to
certain market events.
1996 and the rise of internet-based trading
1996 marked a significant turning point for the forex market due to two key developments
which made forex trading more accessible for individual traders:
1.Internet-based trading: The rise of the internet allowed online trading platforms to be
created, enabling traders to execute transactions quickly and efficiently from their personal
computers.
2.Margin trading: The introduction of margin trading meant that traders could control larger
positions with a smaller amount of capital, making forex trading accessible to individuals with
less capital.
These advancements brought about changes in the forex market:
1. Instant transactions: Traders can now execute trades in seconds with just a click, thanks to
high-speed internet and advanced computing power.
2. Retail FX trading: Forex trading became accessible to individual traders, allowing them to
participate with much smaller investments.
3. Widespread accessibility: Today, anyone with an internet connection can trade currencies,
making the forex market one of the most accessible financial markets globally.
In our next lesson, we will discuss Contracts for Difference (CFDs), a popular trading
instrument in the retail FX market, and explore how they work.