The foreign exchange market is the world’s largest market and sees millions of transactions taking place every day. Whether you are about to get started in the world of forex or you simply have an interest in how the market works, it’s a good idea to get started with learning a little about the world’s most popular currencies and the part they play on the market.
Let’s take a look at some of the most converted currencies on the forex market today and some of their underlying qualities.
The US Dollar
It might come as no surprise to know that the US dollar is easily the most traded currency in the world. In fact, almost every central bank in the world uses the USD as its reserve currency and the USD can be found in a pair with all major currencies across the globe.
The USD is also used as the official currency of many nations or is widely accepted as an informal alternative currency. It is also used as the standard currency of most commodities including precious metals and crude oil.
Although still a relative newcomer to the currency markets, the euro has leaped ahead of other currencies to become the second most traded currency behind the USD. It is also the second largest reserve currency in the world today and the official currency of most of the countries in the eurozone.
Many countries within Africa and Europe also peg their currencies to the euro in order to stabilise the exchange rate.
The Japanese Yen
When it comes to currencies in Asia, the Japanese Yen is easily the most popular and most traded currency. It is also viewed on by many as an indicator of the strength of the Japanese manufacturing and export industries.
Many forex traders also use the strength of the Yen to also gauge the health of the Pan-Pacific region, namely countries such as South Korea, Thailand and Singapore, as their currencies are not traded on the global forex markets as much.
The Great British Pound
The fourth most traded currency in the world is the Great British Pound, also known as pound sterling. It is also used as a reserve currency by many nations. The UK, whilst being a member of the EU, has decided not to switch to the euro for a number of reasons. This is primarily down to historic pride, but also because in doing so, the UK maintains control of domestic interest rates. Forex traders will often see the strength of the GBP as a good indication of the strength of the British economy and its political stability.
The Swiss Franc
Much like Switzerland itself, the Swiss Franc is seen by many as a neutral currency. What this means from a forex trader’s point of view is that is offers a relative safe haven on the forex market. This is down to the Swiss Franc moving in a negative correlation to other more volatile currencies such as the Australian and Canadian dollars.