Today, it’s entirely possible to get instant forex funding and trade from your phone, from anywhere and at almost any time of the day or night. This scenario was completely unimaginable 20 years ago, and in fact for much of its history, forex trading has been limited to elite financial institutions and central banks.
So why was forex trading so exclusive at the beginning? The answer to this question can be found in the evolution of national currencies and the roots of international trade, and also the world-changing events of the 20th century.
The early origins of forex trading
The need to exchange foreign currencies has existed since the time that merchants and traders travelled to sell goods. Initially, commodities such as salt and spice were exchanged rather than money. The first coins were produced in the early 6th century BC, and gold or silver coins became the universal currency for hundreds of years to come.
The value of the coins was determined by weight and metal content, rather than today’s free-floating system that measures currencies against each other. There was no reason to speculate on currency values as most contemporary forex traders do, because the purpose was purely transactional.
The earliest forex market
Over time, the heavy metal coins were replaced by paper notes that could be converted into gold. Individual countries began to hold their precious metals in reserve, and paper notes served as bills of exchange. This enabled the world’s first real forex market to be established in Amsterdam about 500 years ago.
In 1875, the Gold Standard was introduced, which restricted the printing of paper notes to the equal value of a country’s gold reserves. Gold was the metal of choice due to its rarity, durability, mallability, and the effort involved in extracting it.
The government of countries that signed up to the Gold Standard guaranteed that they would redeem paper money for its value in gold. This system worked reasonably well until the onset of the Great Depression after World War I, when many countries had depleted reserves and frequently defaulted on their obligations.
Recognising that this would make it impossible for the world economy to recover from the devastating effects of two world wars, global leaders and economists began working out a new system to stabilise exchange rates.
The rise and fall of the Bretton Woods System
This led to the creation of the Bretton Woods System, which pegged most global currencies to the value of the US dollar, as the US economy and industrial base had suffered the least damage from the wars. In turn, the US dollar was pegged to gold at a fixed rate of $35 an ounce.
The agreement was signed by delegates from 44 different countries in July 1944 at Bretton Woods in New Hampshire, USA. In terms of forex history, it was very significant because it fixed exchange rates and allowed swift and smooth transactions between countries.
However, forex trading remained a very exclusive domain because there was little room for speculation, and governments intervened heavily in the market to maintain exchange rate pegs. Only central banks, commercial banks, and large multinationals participated in the market, mainly to manage currency reserves or conduct international business.
It was almost impossible for individuals to access the market unless they had significant amounts of capital, and even then it required contacts within a banking system that was largely closed to the public. All this began to change with the collapse of the Bretton Woods System and the rise of digital technology.
The rise of the free floating market
By 1971, the Bretton Woods system was failing due to the devaluing of the US dollar against its gold reserves following a surge in government spending and lending. The system was completely dismantled by President Nixon in 1973. As a result, most currencies floated freely on the market, with the value determined by supply and demand.
This meant that speculation was profitable for the first time, and the first true forex market was launched out of Chicago in 1972. During the 1970s and 80s, the global economic situation remained uncertain and the resulting fluctuations in the market created both risk and opportunity.
However, even in this freer environment, forex trading remained largely exclusive to interbank markets, large corporations and governments and central banks.
Continuing barriers to entry
Despite the foundations being laid for the modern forex market, it remained closed to individual traders for a variety of reasons. These included:
High minimum trade sizes: the interbank market operated with multi-million dollar lot sizes, and this amount of capital was not accessible to 99.9 per cent of the population.
Basic communication systems: During the 1970s and 80s before the internet, trading was conducted by telephone or telex machines and prices were relayed manually. This meant the practical means to access the market was limited to those who worked in the financial sector or who had trusted contacts within it.
Limited access to leverage: Leverage (trading with borrowed money) was only accessible within financial institutions, and individual investors were not in a position to negotiate leverage.
Lack of regulation: Although the forex markets were tightly controlled by governments, there was no structure in place to protect individual speculators. The only realistic way for solo traders to access the market was through having access to substantial private capital and contacts within the banking system.
How the internet bulldozed through barriers
The real levelling of the playing field began in the 1990s, with the rise of the internet and personal computing. Brokers and prop firms offered leverage to solo traders, who were able to access the market through electronic trading platforms and real-time quotes. An online trading community grew, offering tips, insights and free educational materials.
During the 00s, forex trading was still a relatively niche activity, but as technology and internet speeds improved, the global market has blown up and become more competitive. Today, millions of solo traders supplement their income or have even made forex trading their career.
New frontiers: how to thrive as a solo trader
In theory, anyone can access the forex markets from their phone or laptop and begin trading. However, it’s important to appreciate the history of the markets and have an awareness that it can be risky, complex and fast moving. We might enjoy advanced technology and instant connectivity, but it’s essential to back this up with knowledge and skills.
Learn as much as you can
Although forex trading is more accessible, for most of history only trained professionals carried out trades, and even they made mistakes and incurred heavy losses sometimes. The markets have evolved around global economies and international trade, and they take skill, patience and emotional control to navigate.
The technology might be user-friendly, but the markets are not designed to serve your purposes: you need to put in the time and effort to learn technical and fundamental analysis and risk management skills.
There’s a lot of content out there promising to help you learn to trade, but separating valuable insights from empty hype takes discernment. Be cautious of flashy courses or so-called YouTube gurus promising overnight riches.
Unless you already have a strong background in finance or trading, the idea of turning a few hundred pounds into millions in just a few months is more fantasy than fact.
Instead, look for educational material that’s realistic about what forex trading involves. A good course will teach both the opportunities and the risks, without making inflated promises. Once you’re comfortable with core concepts like pips, spreads, leverage, and margin, it’s time to put together a structured trading plan.
Risk management: your most important skill
Perhaps the most essential skill for long-term success in forex is mastering risk management. Every trader, no matter how experienced, faces losing trades.
What separates successful traders from the rest is how they handle those losses. Always trade with a stop loss in place to limit your downside, and make sure you’re clear on your personal risk tolerance. Understanding how much you’re willing to lose on any given trade is just as important as identifying when to enter or exit the market.
Put Your Knowledge Into Action
Once you’ve built a solid foundation, the next step is applying what you’ve learned. Demo accounts can be a great way to get familiar with a trading platform and market conditions, without risking real capital. However, because there’s no real pressure, they can also feel a bit detached from reality.
If you want a more immersive experience with minimal financial risk, consider signing up for a 14-day free trial with a proprietary trading firm (prop firm). These trials offer access to virtual funded accounts where you’ll trade under live market conditions, using professional platforms and tools.
You’ll be challenged to meet profit targets and adhere to strict risk management rules, offering a more realistic trading environment. If you can demonstrate consistent skill and discipline, you may qualify for the firm’s evaluation stage and, ultimately, a fully funded live account with a profit-sharing arrangement.