How the Road was Paved

Today’s forex market was formed in the early 1970’s. The first major step in the formation of the market was the Bretton Woods Accord, which was established after World War II to restore the world’s economic state. The Bretton Woods Accord decided that all major currencies would be pegged to the U.S. dollar, which was pegged to gold at a price of $35 per ounce. Under these standards, the major global currencies pegged to the U.S. dollar were only able to fluctuate by one percent.

The European nations sought to move away from their dependency of the dollar in the 1970’s, thus forming the Smithsonian Agreement and the European Joint Float. Each agreement was similar to the Bretton Woods Accord, but allowed a greater range of fluctuation in the currency values. However, both agreements failed, paving the way for the free-floating systems. There were no longer pegs on currencies, and therefore currencies were able to fluctuate freely.

Traders utilize these fluctuations on the forex market. By studying price changes and current events, a forex trader can buy or sell one currency against another in hopes of making a profit off of the price fluctuations.