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The Wild West of Forex The History of the World’s Largest, Most Misunderstood Market

Sean Hyman (July 6, 2009)

Monday, July 6, 2009

Back in the day all the “groovy” Forex trading happened at the Chicago Mercantile Exchange (CME) during the 1970s.

The only problem? You couldn’t trade!

In fact, only the largest banks, insurance companies and corporations could. That was about it. Even smaller banks, insurance companies and corporations couldn’t muster up the money needed to trade in this market.

(Fun Fact: Back then everyone had to “phone in” orders or physically be in the trading pits to trade Forex.)

You see, back then…lots were traded in millions and billions of units of currency. Therefore if you didn’t have millions of dollars (minimally) to throw around in that market, then you didn’t qualify to trade foreign currencies.

However, as you know, technology progressed through the years to where trading was finally able to be done over the internet.

Upon the advent of online trading, it was possible to aggregate a ton of traders’ orders together to meet these huge requirements that the formerly only the big boys could meet. Suddenly it was possible for hundreds of smaller retail traders (read: you and me) to “collectively” enter the Forex market.

Even still, in the early days of retail Forex, traders needed larger account balances generally because the lot sizes were 100k lots (100,000 units of currency for each lot traded).

In the late 1990s, retail Forex firms started introducing “the mini lot” to the retail trading public. A mini lot allowed smaller individual traders to buy or sell only 10,000 units of currency at one time.

That’s when the retail Forex market really exploded. You see, then, you could get by with having $2,000 to $5,000 realistically in your accounts vs. the $10,000 to $50,000 needed before.

Even in the last couple of years, we’ve seen the advent of the “micro lot” that has opened up the doors even further to “anyone and everyone” out there, really. Someone can realistically start in a micro account for $500 to $1,000 (while only $25 is usually “required” to start them up).

The earliest player I can remember in retail Forex was CMC Markets out of the U.K. Also, around that time Oanda got their start (out of Canada).

FXCM was really one of your first big brokers out of the United States. They cranked up in 1999. Even though they started a few years later, they’ve become one of the very largest retail FX firms in the entire world.

Back in the Day Before Firms Were Legit

When the retail Forex market first started out in the U.S., it was largely an unregulated market. But then Congress passed the Commodity Modernization Act in the December of 2000.

Before this time, it was the “Wild West” in Forex trading. There were no laws or governing bodies that technically “watched over” Forex firms back then.

Even with the regulations in place, there are still Forex scammers in the FX industry still today.

Why? It’s because Forex is worldwide and so are the firms that participate in it. If you’re based out of an area that is unregulated, then you can still operate a shady firm even today.

Many firms are starting to realize that even though they are legit, they need to help clean up the industry so that they don’t all get a bad reputation.

The Public Largely “Woke Up” to Forex around 2004/2005!

Even though a lot of firms have been in business since the late ’90s or early 2000s, it really wasn’t until about 2004 that the growth of this industry really took off.

As many of you know, I work for FXCM as one of their Course Instructors. Back when I started in 2005, I bet we only had around 20-30,000 accounts. However, today, the firm boasts well over 125,000 live accounts.

Before, 2004-2005, the retail Forex industry was still growing up. The vast majority of the retail public had no idea what Forex trading was or how to invest in it. (Many still don’t.)

Today, it’s sprinting as these firms are raking in accounts from the four corners of the world!

I was fortunate enough to work in stocks for Charles Schwab at the beginning of the “online stock trading” boom and now I’ve been privileged enough to take part in the “online Forex trading” boom as well.

I must say, it’s an exciting thing to go into work each day and see where this all goes…

Happy Trading!
Sean Hyman, aka Professor FX

P.S. World Currency Watch launched their first Forex-trading research service in 2004, right around the time Forex trading really took off. Today, five years later, this fast-trading Forex service is still one of our most popular currency services for newbie traders. Each week, your editor Ashish Advani tells you which pairs to buy and sell, along with stop-losses, profit targets and everything else you need to place your first Forex trade. Get more details on this groundbreaking service here.

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