Forex is one of the largest markets having high trading volume and numerous participants. Each day trillions of dollars are traded between millions of parties. The article will guide you to choose the best currencies for trading in forex.
The essential step in understanding the foreign exchange market is to get familiar with the most commonly traded currencies. Let’s have a look at some of the best currencies you can trade right now.
The US Dollar
The most tradable currency on the earth is the US dollar. That’s why it is first and foremost in the world of forex trading. The US dollar is also called the greenback. The greenback exists in a currency pair with all other significant currencies.
The US dollar acts as an unauthorized worldwide reserve currency and often serves as the intermediary in triangular currency transactions. Also, some countries use the US dollar as an official currency instead of local currency, and this practice is called dollarization.
In some countries, the US dollar works as an informal alternative form of payment while those countries maintain their official local currency. It plays a vital role in the foreign exchange market rate for other currencies, where the countries try to fix or peg their currencies to the dollar’s value.
The other feature of the US dollar is that it can be used as a standard currency for most commodities, such as precious metals and crude oil. Thus, the commodities’ prices not only fluctuate according to the basic principle of economics, that is, supply and demand, but also relative to the US dollar’s value.
After the US dollar, the euro has become the most traded currency globally. Euro is the official currency of most nations in the eurozone, founded on January 1, 1999. As an authorized currency of most eurozone countries, many nations within Africa and Europe peg their banknotes to the Euro.
Many nations peg their currencies to the euro for the same reason to stabilize the exchange rate. The euro also exists in the forex market and is the most trusted and widely used currency.
The Japanese Yen
The Japanese yen is the third most traded currency after the US dollar and the euro on the earth. It is also used as a reserved currency. As the economy of Japan goes, it(yen) goes the same. The forex traders keep an eye on the yen to see the overall health of the pan-pacific region.
The Japanese yen (JPY) keeps trading underneath the identity of a carry trade part. The currency providing a low-interest rate has stood against higher-yielding currencies, particularly the New Zealand and Australian dollars and the pound sterling. As a result, the underlying trends are terribly erratic, forcing FX traders to take technical views on a longer-term basis.
The Great British Pound
The fourth most traded currency in the forex world is the Great British Pound, also known as pound sterling. The UK was the authorized member of the European Union. However, the country never used the euro as its official currency for several reasons: the historic pride in the pound and maintaining control of domestic interest rates.
Therefore, the pound is sometimes seen as pure-play in the united kingdom. The value of the British pound depends on two factors: the overall strength of the British economy and the political stability of the British government. And the traders will guess the value of the British pound according to the two elements.
The Great British Pound represents a very liquid portion of the forex market and is an essential currency benchmark for many nations due to its high price relative to its peer. Compared to other global currencies, it acts as a significant reserve currency due to its high historical value.
The Australian Dollar
One of the major currencies in the Asia Pacific region is the Australian dollar, also known as Aussie. The value of the Aussie can be affected by the price shifts in Australia’s major exports; therefore, it is considered one of the top commodity currencies.
The AUD-USD pair now has 6.37% of forex volume worldwide, more than the dollar pairing for both the Swiss Franc And the Canadian dollar.
The Canadian Dollar
Also known as the loonie, the Canadian dollar often moves with the commodities market. Therefore the Canadian dollar is also a commodity currency. Canada is a prominent exporter of crude oil, precious metals, and minerals commodities. That’s why the loonie often reacts to underlying commodities prices.
The Canadian dollar is often traded to speculate on commodities’ movement.
You can see in the article that every currency has some unique features that affect its underlying value and price movements relative to other currencies in the forex market. With the continuous growth of the financial market, currencies and foreign exchange will play a vital role in day-to-day transactions.
The U.S. dollar, the euro, the yen, the British pound, the loonie, and the Swiss franc are some of the major currencies of the forex market to watch.