There are a lot of things you can do with money. Think about it for a second. In this day and age, money really is the grease that drives our society. We use it to acquire things that will cover our basic needs, and when those are taken care of we start taking care of our wants.
Some of us spend it as soon as we get it, while others hoard it away and pinch every penny. But did you know that you can also trade it?
That’s right, you can trade money for more money, and the funny thing is, you can actually make even more money while doing it. It’s called currency trading, and it can lead you to big money. Really big money.
Currency trading defined
But where did this new market come from? In order to understand how currency trading came to be one of the fastest ways to get rich quick these days, it is important to take a look at the basics of currency in general.
There are four main versions of currency, and this is how they came to play a part in the economic systems that are alive and well today.
We didn’t always have money.
In fact, civilization got on famously without money for thousands of years before anyone realized we needed it. Until that time, man satisfied his need for wealth with a complicated trade and barter system.
He traded cows, or shells, or chocolate beans, or whatever else he could get his hands on that other people found valuable. When he had a surplus of these things, he would trade them for other things he needed. When he was running low, he traded other things to get more of what he needed.
And so man went on for many years. He traded animals, or grain, or things like beads and pottery. He had unwittingly stumbled over the first type of currency, known as commodity currency.
Commodity currency is a term used to describe all of the value that a society puts on perishables that can be traded back and forth. In primitive cultures, this system of trading goods is still alive and well.
Commodity currency is especially handy in places where there is a high level of poverty, because the commodities are usually perishables like livestock, food, or cloth. In times of dire need, these perishables can be consumed or used in some way that will help the person who owns them. The more useful these items are, the more value that society places on them.
The down side to this type of currency is that perishables are often bulky. Imagine trying to fit 10 cows into your wallet!
The other problem with commodity currency is that sometimes the perishables have little or no value outside of their own culture. A good example of this would be the Indians of Central and South America, whose prized cocoa beans were virtually worthless to early explorers.
The first coins
Coin, literally means a “Cast” of Thousands.
In 640 B.C., the King of Lydia had a great idea. He began stamping ingots with an imperial coat of arms. These “imperial coins” represented the wealth of the kingdom, and by his laws they had a specific value attached to them.
He had effectively created another type of currency, the coin currency.
The king of Lydia had a great idea, to be sure, but it was only a matter of time before he had devalued them because he had stamped out too many ingots. They once again became worthless chunks of metal.
The idea quickly caught on with the Greeks and Romans. They began stamping coins out of precious metals like gold and silver, and the actual weight of the coins was tied into their value.
It was much easier to take a stack of coins to the market than a stack of cows, and this convenience was not lost on early man.
However, problems arose later on when successive rulers began to run out of wealth. When their coffers became light, they simply cut the amount of precious metal in the coins being cast. Unfortunately, this had the effect of steadily devaluing their currency, which before too long caused them to collapse.
Ironically, their great societies were quick to follow.
Trading Paper for Gold
It was the Chinese who first came up with the idea of paper money. They used bark, stamped with imperial symbols as a form of currency. The consequence of forging one of these stamps was dire; anyone caught doing so was immediately put to death.
During the 1100’s, Europe saw currency made from leather for a short time, but it soon fell out of favour. The problem was that it was hard to keep a consistent value on it, and people were generally untrusting of it. They had a hard time believing that if they handed a cow over for a few pieces of painted leather, they would be able to later spend that leather on something they needed.
It was the goldsmiths that actually came up with a useful system of paper money in Europe, but it didn’t happen until the 1700’s.
For years, goldsmiths had been handing out receipts to people when they brought in their gold to be cleaned and melted down. These receipts represented an actual amount of gold sitting in the goldsmith’s own shop.
Customers who had these receipts gradually began trading them for goods and services. The receipts had value because anyone could take a receipt down to the goldsmith and retrieve the actual amount of gold listed on the receipt.
This is where the term “backed by gold” came, and it wasn’t long before the governments of the day caught on to the idea. In fact, the idea that a currency could represent an actual amount of gold somewhere was the driving force of the world’s economies until 1971, and it was known as The Gold Standard.
Your Money is in the Bank…Sort of
The last big evolution in currency occurred just after World War II when banks began recording their transactions on large magnetic reels. At the end of the day, all of the transactions for that day would be carefully recorded. Then the bank would ship off their magnetic reel to whatever other banks needed to access those transactions.
It was an amazing revelation, because it now meant that transporting huge sums of cash from bank to bank had effectively become a thing of the past.
Since money is essentially just a record of personal wealth, the important thing is that that record is accurately kept. This way, the banks could keep their money locked safely away without having to transfer it anywhere.
Later, with the advent of the wire transfer, this process became even quicker. The process has continued to streamline itself, as this concept of electronic currency continues to mature.
Today, cell phone banking, internet banking, and the widespread use of credit cards are a common occurrence. The age of the electronic currency is here to stay. It has been estimated that only about 8 per cent of the world’s recorded wealth is represented as actual money these days. The other 92 per cent exists only in computer databases and banking files!
The New Economy
In 1971 The Gold Standard was abandoned in favour of a free floating economy. From this point on, the only thing that would dictate the value of world’s economies would be the open markets of supply and demand.
Adam Smith would have been proud.
In this new economy, the value of a currency was dictated by how much an investor was willing to spend on it. The more in demand a currency was, the higher its value became. The economies of the world slowly found their places in this new hierarchy, and exchange rates began to fluctuate.
These fluctuations were what the world’s banks and some large international corporations were hoping for. They quickly began transferring their money back and forth, playing the numbers game, waiting for exchange rates to go down and buying up large amounts of foreign currency to be traded when the rates inevitably went back up.
They had built up the Foreign Exchange Market, soon to be known as FOREX.
For years, the Forex market was only open to these large corporations and banks. They charted the unstable waters of this wide open market system, riding high on big sails and being slammed against the rocks when the tides came in.
Eventually, the Forex market grew larger to incorporate all of the currencies of the world, and Forex Trading became a must for any large company.
In 1995, the maturation of the internet allowed the Forex Market to be opened to the general public for the first time. Now, anyone with money could go through a Forex Clearing House (also known as Brokerage Firms) and test their market know-how on the Forex Market.
The value of the Forex market has since exploded. On any given day, Forex Volume exceeds $1.5 trillion. That’s 75 times bigger than the New York Stock Exchange!
Today, there are Forex Clearing Houses all over the world. The Forex Market runs 24 hours a day from Sunday evening to Friday afternoon. They’re all connected by high-speed internet, and they’re all waiting for investors.
Hopefully, this article has shed some light on the exciting world of foreign economics and currency trading. If you would like some more information on this subject, there are many investment companies that would happily answer your currency trading questions.
In the meantime, feel free to look over this article anytime you need a quick history lesson on Forex trading or even the history of currency in general!