Trading currency on the foreign exchange (fx) market may seem like a relatively recent phenomenon, but in fact the history goes back to ancient Babylonian times, when there was a need to trade using different currencies. Of course, speculation in the market was virtually non-existent then, and instead a barter system was introduced, whereby one lot of goods was traded for another. Eventually a system evolved in Asia and Africa that traded metals, particularly gold and silver, in exchange for goods.
Paper currency came into being in the Middle Ages, as a form of IOU, and by the First World War was tied to gold reserves by the central banks. At the time of the Great Depression in 1931 the gold standard was removed, which adversely affected activity in the fx market. For more than 40 years the market went through several changes and fx trading and speculation remained at a low level.
After World War II the Gold Standard was reinstated and the dollar was fixed at $35 per ounce of gold. All other currencies were then fixed to the dollar. As national economies changed and moved in different directions, the dollar became unsuitable as the sole currency for international use and gold convertibility was suspended in 1971.
Since then fx trading has become the biggest of all the global markets and national restrictions on the flow of capital have been removed, leaving a free market that can alter and adjust fx rates according to world perspectives. Although it initially worked under governmental institutions and central banks, it now works with a range of establishments and this has resulted in fx trading worth about 1.9 trillion dollars every day, and continues to open up new opportunities for shrewd investors.