History of Retail Forex

Retail trading, is more structured than the Forex market as a whole. While Forex has been traded since the beginning of financial markets, modern retail trading has only been around since about 1996. Prior to this time, retail investors were limited in their options for entering the Forex market. They could create multiple bank accounts, each one denominated in a different currency, and transfer funds from one account to another in order to profit from fluctuating exchange rate. This was troublesome, however, because the transaction costs incurred were large due to the small quantity of funds being converted relative to the size of the market. This transaction type was at the very bottom of the Forex pyramid.

By 1996, new market makers took advantage of developments in web-based technology that made retail Forex trading practical. The new companies felt that there was enough liquidity in the Forex market, and eventually within their own customer base, to guarantee markets under all but the most unusual market conditions. These companies also created online trading platforms that provided a quick and easy way for individuals to buy and sell on the Forex Spot market. In addition, the companies realized that by pooling many retail traders together, they had the size to enter the upper echelons of the Forex market, which reduced the size of the spread. As the business grew, the market makers were given better prices, which they then passed on to the customer.