It’s effortlessly the largest and the most liquid market across the globe; the forex market keeps growing each year.
Its daily turnover exceeds $5 trillion and still showing no signs of stopping. Large institutions, as well as dealers, are buying and selling various currencies.
As a novice trader, it’s a no brainer that you should know the most traded currencies in the forex market. Furthermore, there use outside the market should also be apparent to any trader.
Therefore, to keep you up to speed with the most popular currencies in the forex market, here are the characteristics of most traded currencies:
The US Dollar (USD)
Issued by the Fed (Federal Reserve), the USD is the most traded currency on the planet and accounts for about $2.2 trillion daily. It can be traded with all the other currencies and often acts as an intermediary in the triangular currency trades.
The main reason is that the USD is a reserve currency held by all major central banks of the nations as well as the premier financial institutions.
Furthermore, the currency is famous as a result of its acceptance across the world. In fact, some countries use it as the main currency, while others use it for payments, although they do have their main currency separately.
The forex market is in such a way that most other currencies go on to use the USD as a benchmark. Some nations peg their currency to the USD.
Therefore, as a forex trader, it’s significant to understand that the USD is used by most commodities such as crude oil and gold for exchange.
Therefore, their prices not only do they depend on the supply-demand fluctuations but also the value of the USD.
The Euro (EUR)
Issued by the European Central bank (ECB), the EUR is the second-largest traded currency. Although still new in the world stage, it’s also the second-largest reserve currency in the world.
Most nations in the Eurozone use the EUR as the main currency, as is the case with countries within Europe. Some nations peg currencies with the Euro to stabilize the exchange rate.
Being widely used as well as trusted as a currency, the Euro is prevalent in forex trading, adding liquidity to the currency pairs it trades within.
Moreover, it’s commonly traded by speculators who test their health in the Eurozone. Usually, political events in the Eurozone can lead to massive trading volumes of the currency in the markets.
The Japanese Yen (JPY)
The Yen is the third-largest traded currency in the world, but it holds bragging rights as the most traded currency in Asia.
Its value is often used to reflect the strength of the mother country’s (Japan) export as well as the manufacturing economy.
In that case, when the economy is doing well, the Yen rises. Moreover, it’s also used to measure the economies of nations in Southeast Asia like Korea, Singapore, and Thailand.
In the forex circles, the Yen is known for the role in the carry trade. For over two decades, Japan has had a zero interest rate policy.
Traders have been borrowing the Yen and using it in investing in other currencies with high yields, and hence pocketing rate differentials.
Therefore, the Yen’s value has not appreciated as a result of the trader’s constant borrowing.
However, its value is determined by its relationship with international rates.
The Great British Pound (GBP)
On the fourth spot is the pound sterling (GBP) as the most traded currency in the market. It’s a reserve currency as well owing to the value concerning other currencies.
Furthermore, it maintains control of the domestic interest rates hence a pure-play in the UK.
Due to its strong value compared to its peers, it’s a significant currency benchmark for most countries as well as acts as a liquid component in forex trading.
The Canadian Dollar
Also referred to as the loonie, the Canadian dollar is arguably the globe’s foremost commodity currency, which means that it moves with the commodities markets.
The country is well known for exporting commodities, making the loonie volatile.
It’s also used by traders to speculate movements of the commodities or simply to hedge risks of the contracts they hold. The loonie depends on the changes in the USD and the strength of the US economy.
Swiss Franc (CHF)
The Swiss franc is the other most traded currency in the market, and like Switzerland, it’s largely viewed by most as a “neutral” currency.
In fact, in the forex market, the Swiss franc is considered a safe haven because it tends to move negatively to volatile commodity currencies like the Canadian and Australian dollars.
The Bottom Line
As the financial markets keep growing and evolving around the world, currencies and foreign exchanges will play an increasingly colossal role in the day-to-day trades and transactions.
Each currency has its specific features that affect its underlying value as well as price movements to the other currencies within the forex market.
To become successful in the forex market, it’s significant to understand what moves the currency and why it moves.