Forex exchange is a broad term. The world is going through a phase of globalisation. It is empowering people and giving hopes to the lesser equipped nations. The exchange of currency is the medium that drives the cordial reception among countries. Such process serves multiple purposes; from enabling businesses to extending help to needy people. It creates employment, stabilises economies and establishes bonds among people of different backgrounds and cultures. Before beginning the forex trading, it is better to know the past, which sets the platform for future transactions.
A humble start
Antecedent to the locomotion of currency in exchange of goods purchased a precious thing, or an object worked like money. To know about it, an in-depth study of foreign currency exchange is a must. Meaning of Barter gives an insight regarding it.
Barter– The word finds its derivation from Baretor. Here, both the seller and the buyer mutually agree to transact goods by giving away some service or products. This method was a reciprocation of an item purchased. The barter exercises were usually practised in friendly terms. But later on, as the acceptance grew, it found footholds in businesses. The practice was mostly bilateral and immediate. The concept is relevant in today’s time as well.
However, there were some loopholes. The absence of the favourite item in exchange would often break the deal. To resolve the issue of non-acceptance, the necessity of a proper tender arose. Currency coins found ground to replace them in all the countries.
Advantages of Barter:-
In the absence of money, trade happens by providing a required thing. Also, if a trader is short of cash, offering a commodity of equal price can seal the deal. During the hyperinflation, the method is adapted to mitigate the concern of shortage of money and the ability to mint more currency. It hampers the idea of wealth gathering and accumulation. That essentially means, there are no wealth or currency hoarders.
People pay as per their capacity, and no one can pressurise them. The measurement of valuation depends on the will of traders. It prevents the wastage, as there is no concept of overproduction in this scenario.
- The absence of proper valuation in Barter acted as a barrier. The ad-hoc assessment of a product often created confusion regarding the actual value on the exchanged thing.
- The limitations of goods for exchanges caused a lethal problem. The demand and supply rule would get derailed.
- The idea of accepting services for goods seemed unreal. Quantifying a physical effort with a product is unjustifiable.
- The expiry date of goods is also one of the biggest problems. Not all products last for a long time, especially the edible ones.
- It is tough to trade with Barter technique in a multilateral affair.
The starting point of Forex Trading
It believed to have started from Mesopotamia 6000 BC. Though, the theory is contradictory to the fact as Indus Valley Civilization is 5000 years old and considered oldest.
Initially, goods got them goods and items came into use for buying and selling products. Later on, in the international markets, people started accepting spices and salts in exchange. The spike in the acceptance led to ships fairing all over the world on different ports. It strengthened the proposition of universal brotherhood. Cultural swaps transcended from borders, seas and oceans.
In the medieval period, silks, artisanal objects, food, tea, weapons began to trade as an interchangeable asset. Roman soldiers received their salary in the form of the salt. During their odyssey in the primitive era, Europeans swapped perfumes, artistic work, and other locally produced products for other goods.
Later on, slowly and steadily, gold became one of the most utilised metals in trading. The prime reason for the surge in the usage for trade was logistical. It does not perish, traders accepted it wholeheartedly, it does not oxidise in normal conditions, it’s one of the rarest commodity available. In comparison, gold stood out in terms of superiority. To know what is forex trading and its utility importance of glancing on gold deals is pivotal.
Forex trading explained
A non-specialist can cite several examples to understand the gravity of forex trading. When people happen to travel abroad, their currency does not fit the norms of the country they are visiting. In that case, visitors have to get it changed from legitimate counters and authentic exchange agencies. The process is validated and under surveillance from the central banks of different nations.
The valuation of the exchanged currency depends on the current market price of that currency. For example, if a globetrotter is visiting India from Germany (Euro is prevalent in the country), he needs to exchange it in Indian Rupees. For the record, the valuation of Rupee is lower than the Euro in the international market.
As per current valuation, 1 Euro is equivalent to Rs 85. It keeps on changing as per forex reserves and market changes. Cuts applied on the exchange of currencies depending upon the terms and guidelines of the country and platform of trade.
Words of Wisdom
Evolution is the nature of a human. It adds sustainability to life and gives purpose to everyone. The changes in forex exchange over the years stamps the fact. A good investor is vigilant and keeps track of the past. Learning from history develops a foundation for a trader. They can have conclusive ideas and avoid mistakes made earlier. After all, a wise person traces down ancestors and their doings.