Currencies for Trading LIST: Forex is the biggest and most liquid market, which is awash with trillions of dollars that are traded across millions of people across the globe every day.
A first stage towards knowing the market, often referred to as currency or foreign exchange trading is to become familiar with a few of the most frequently traded currencies. Here’s an overview of six major currencies, along with the basic characteristics and traits of each.
- US dollar (USD)
- Euro (EUR)
- Japanese yen (JPY)
- Pound sterling (GBP)
- Australian dollar (AUD)
- Canadian dollar (CAD)
- Swiss franc (CHF)
- Chinese renminbi (CNH)
- Hong Kong dollar (HKD)
- New Zealand dollar (NZD)
U.S. Dollar (USD)
It is believed that the U.S. dollar, which is also known as the greenback, is a major player first and foremost in forex trading since it is by far the most used currency in the world. It is the most traded currency on earth. U.S. dollar can be included in a currency pair with other major currencies, and frequently serves as an intermediary in triangular transactions.
This is due to the fact that it is the official reserve currency of the world that is held by almost every central bank or institutional investment company around the world. Additionally, because of that the U.S. dollar’s global acceptance the dollar is also used by a few nations as their official currency as an alternative to a local currency, which is called dollarization.
It is also known as dollarization. U.S. dollar also may be widely accepted by other countries, serving as an alternative method of payment, even though these countries keep their local currency. There is a reason why the U.S. dollar is also an important component in the exchange rate market for other currencies
and it can serve as a reference or target rate for nations that decide to fix or link their respective currencies in line with the value of the dollar. China for example, has had its currency for a long time the renminbi or yuan tied to the dollar to the dismay of many central bankers and economists.
In many cases, countries change their currency in relation to U.S. dollar to stabilize their exchange rates, rather than permitting the free (forex) market to dictate the currency’s worth. Another characteristic associated with one of the advantages associated with U.S. dollar is that it is the currency of choice for many commodities, including precious metals and crude oil.
This means that the commodities are not only to fluctuation in value due to fundamental economic concepts of demand and supply, but as well to the value that is that of the U.S. dollar, with the prices of these commodities highly influenced by inflation as well as U.S. interest rates, which could impact the value of the dollar.
The euro is now the second-most traded currency, second only to that of the U.S. dollar. The currency used by the majority of countries within the eurozone, the euro was first introduced to the global market on January. 1st, 1999 when coins and banknotes were introduced into circulation three years after.
In addition to being the currency used by the majority of eurozone nations, numerous countries within Europe and Africa have their currencies linked to the euro for similar reasons to why currencies are linked against the U.S. dollar–to stabilize the exchange rate. In the end, the euro is the second-largest reserve currency in the world.
The euro is a popular and reliable currency, it is a common sight on the market for forex and provides liquidity to any currency pair that it trades with. The euro is traded by speculators to attempt to gauge the well-being of the eurozone as well as its members.
The eurozone’s political climate could also result in large trade volumes in the euro, particularly when it comes to countries who saw their local interest rates decrease significantly at the time the currency’s creation, including Italy, Greece, Spain and Portugal. The euro is perhaps among the least “politicized” currency that is traded on the foreign exchange market.
Japanese Yen (JPY)
It is believed that the Japanese yen is among by far the largest of Asian currencies, and is regarded widely as a symbol for the strength of Japan’s manufacturing as well as export-driven economy. In the same way that Japan’s economy performs it will also go the yen.
Forex traders also keep an eye on the yen in order to assess the general state that is in place within the Pan-Pacific region by taking countries like South Korea, Singapore, and Thailand into consideration, considering that these currencies are traded lesser in forex markets.
The yen is recognized in the forex world for its involvement in carry trade. This strategy involves borrowing currency at a low cost (due to the low interest rates) and then using the money borrowed to invest in higher yielding currencies across the globe and securing the rate differentials as well.
Carry trades being the largest factor in the yen’s role in the international arena and the continuous credit of Japanese currency makes appreciation a challenging task.
While the yen is still trading using the same basic principles like any other currency but its connection to interest rates in international markets and rates, particularly those of the more frequently traded currencies like euro and the U.S. dollar and the euro, is an important influence on the value of the yen.
Great British Pound (GBP)
It is the Great British pound, also called the pound sterling is the 4th most-traded currency on the market for forex. Even though there was a time when the U.K. was an official member of the European Union, the country has not adopted it as an primary currency due to various reasons,
such as the pride of history in the pound as well as maintaining control over the rates of interest in its domestic. In the end, the pound is often viewed as a pure-play currency in this country. United Kingdom. Forex traders often assess the worth that the British pound on the basis of the quality of the British economy as well as the stability of its government.
Due to its high worth in relation to its counterparts it is an important benchmark currency for many countries and is an extremely liquid part of trading on the foreign exchange market. The British pounds also functions as an important reserve currency because of its historically large value in relation with other currencies of the world.
Australian Dollar (AUD)
Also called The Aussie The Australian dollar is among the most important currencies in that region in Asia and Pacific. This Aussie is considered to be one of the most important commodity currencies, meaning its value could be affected by price fluctuations in the main exports from Australia.
The AUD-USD trading pair currently is responsible for 6.37 percent of the worldwide forex volumes, surpassing the dollar-dollar pairings for the Swiss Franc as well as the Canadian Dollar.
Canadian Dollar (CAD)
It is the Canadian dollar, also known as the loonie, is one of the commodities currencies, which means that it is often according to the commodity markets, including the price of crude metals, oil and minerals.
Because of Canada being a major exporter of these commodities, the loonie can react to changes in the underlying commodities prices, particularly crude oil. Traders frequently utilize in the Canadian dollar in order to make bets on the price movements of commodities, or to hedge positions on the commodities market.
Swiss franc (CHF)
The Swiss franc is the official currency of Switzerland and the seventh most traded globally, accounting for a daily average volume of US$164 billion.1 It is also the eighth most commonly held reserve currency, at 0.18% of global reserves by value. It is issued by the Swiss National Bank (SNB).
The country’s reputation for financial services and banking secrecy, relatively sound monetary policies and low levels of debt have made the Swiss franc a ‘safe-haven’ currency. This means it tends to rise in times of global economic uncertainty as money pours into the country.
However, roughly half of Swiss exports are purchased by countries within the eurozone, so the currency’s value is also strongly influenced by the strength of the euro and the economic performance of countries within this region.
Chinese renminbi (CNH)
The Chinese Renminbi, sometimes known as the ‘yuan’ is the currency used by China. It is the currency of People’s Republic of China and the eighth most traded currency worldwide with an average of USD142 billion. 1 Despite being an emerging market currency it’s also the 7th most-held reserve currency. It is estimated to comprise 1.23 percent of world reserves. This currency comes from the People’s Bank of China (PBoC).
In the past the renminbi’s value was tied in relation to the US dollar. However, the PBoC recently relaxed its monetary policy, allowing it to be floating within a small band an array of major currencies – in the hope of floating freely in the near future. Many economists think China has benefited from a weak renminbi which has helped make exports more competitive over the past decade and helped it maintain an export surplus with different countries. They they are skeptical of the assertions that it wants to create the free-floating renminbi.
Since China is one of the largest exporters of manufactured and non-manufactured goods so the worth of the renminbi’s value is based extensively on China’s trade terms, specifically with its major trading partners like Europe, the US as well as Europe. Therefore Trump’s trade war and the impact it has on China-US relations and trade between the two countries in general may affect the value of the renminbi over the next year and in the months to come.
Hong Kong dollar (HKD)
It is the Hong Kong dollar is the official currency of Hong Kong and the ninth most traded worldwide with an average of US$117 billion. 1 Unlike most of the other currencies listed on the list HKD doesn’t count as a significant reserve currency.
The issue is made by the Hong Kong Monetary Authority (HKMA) in HKD$10 notes however, the others are issued by 3 licensed banks: the Hongkong as well as the Shanghai HSBC of China. The exchange rate is set at HK$7.80 to US$1 and the three banks that are authorised being required to pay dollars to that of the HKMA whenever they release banknotes to maintain its value close to this amount.
The turnover in HKD increased by a third from April of 2016 to April 2019 increasing this currency’s value from in the top ten in the world rankings to the ninth. This rise in the volume of trade is most likely due to the uncertainty around the political climate that is affecting Hong Kong, which has made the volatility higher for HKD pairs and opened up opportunities to earn profits.
New Zealand dollar (NZD)
It is the New Zealand dollar is the official currency of New Zealand and the tenth most traded currency worldwide and accounts for an average of US$68 billion. Similar to the krona however, it is not an important reserve currency. The issuer is the Reserve Bank of New Zealand.
Value of NZD is heavily depended on the country’s trade relationships, the worth of its imports and exports, as well as the strength of its trading partners and their currencies. The two main trading partners for New Zealand include China as well as Australia. The main exports of New Zealand are agricultural goods – specifically meat and dairy products while its major imports are automobiles, oil and machinery.
The policy in the Reserve Bank of New Zealand may also affect on the interest rates that are offered and the way they compare to the rates provided by other banks worldwide. The currency will increase at times when rates of interest are high in comparison to the rates that are offered in other countries, and to depreciate when they are lower.