The day is September 1, 1939, and Germany’s forces have just moved into Poland, sparking a little conflict
that would later be known as World War II. Let’s fast forward to July 1944, fourteen months shy of the
war’s end. In Bretton Woods, New Hampshire, representatives from the Allied nations gathered to discuss
how they would go about restoring the global economy that has been decimated by the war. Their solution
was the Bretton Woods system.
Under the Bretton Woods system, all currencies involved with the pact were pegged against the United
States dollar (which was pegged to gold at $35.00 an ounce.) This system remained in practice for some
decades after, but it underwent many reforms to keep up with the world’s changing economy. It wasn’t until
the early 1970’s that the practices of the Bretton Woods system were dissolved for various reasons, such as
a weakening dollar as a result of the Vietnam War, and to combat a would-be liquidity crisis, among other
reasons, after which currencies were able to fluctuate at their own accord. If the price of anything
fluctuates, an investor is always nearby trying to exploit ways to profit off the fluctuations. Hence, since the
price of currencies fluctuated, investor entities bought and sold large sums of currencies against other
currencies in an attempt to make profits from these fluctuations (although losses also occurred).
Today, the forex market is the largest market in the world, trading sums of approximately 1 – 3 trillion
dollars per day. Several entities participate in the market, including:
• Central banks
• Commercial banks
• Market makers
• Investment firms
• Brokerage firms
• Firms that perform foreign trade operations
• Private individuals
You and I fall into the latter category. Only recently have private individuals been allowed to trade on the
currency markets. Thanks to the aid of brokers’ technological advancements that allowed traders to access
the market and to the allowance of high leverages that made trading on the forex market worthwhile, the
presence of private individuals in the marketplace has thrived.
