Foreign exchange markets and currency speculation: historical perspectives

This chapter presents a short history of currency speculation and examines currency returns over the long run. I first review the main institutional developments in foreign exchange markets from the Middle Ages to the modern period. Next, I discuss the existing evidence on the long-run profitability of currency speculation strategies. Finally, I examine selected historical case studies of currency investors. The historical evidence suggests that foreign exchange traders can generate high profits but that any trading strategy also involves substantial risk. This is consistent with the view that the returns to currency speculation compensate investors for risk-taking.