History of FX
Foreign currency trading dates back to ancient Egyptian times and beyond, but obviously nothing like anything we have today. It followed on from bartering where goods were physically swapped for each other rather than exchanged for money. This had its limitations as you might not want to swap a chicken for your sack of potatoes. So this led to the creation of a monetary unit, be it stones, teeth or metals. Soon these developed into coins and with the use of paper IOU's this led to the currency system in place today.
Obviously when someone in one country wanted to trade with someone in another country who used a different currency unit there had to be a conversion done between them. As global economies quickly evolved during the 20th century, it was felt necessary to link the use of money to gold to give it a real equivalent value. This had its problems and this system was replaced by the Bretton Woods agreement in 1944 where the value of the main global currencies was pegged to the value of gold and the US Dollar.
This agreement, albeit under strain, lasted until 1971, when it finally broke down, and now market forces determine where most of the world's exchange rates are. The people who determine where an FX rate should be are those people who actually trade FX, and it is these volumes going through that push the rate one way or another. Typically the main contributors are banks, central banks, currency speculators, currency hedgers, corporations, governments and other institutions.
The average daily volume in the global foreign exchange and related markets is continually growing. According to the Euromoney FX poll, annual reported turnover in 2007 was $175 trillion up 40% from 2006. Since then, the market has continued to grow and the same poll reported that volumes grew a further 41% between 2007 and 2008.
