The first thing that people just getting started in the world of forex markets must do is familiarize themselves with the most popular and commonly traded currencies in the forex market – the major currencies of the world.
These are:
* The United States Dollar (USD)
* The Euro (EUR)
* The Japanese Yen (JPY)
* The British Pound Sterling (GBP)
* The Swiss Franc (CHF)
* The Canadian Dollar (CAD)
* The Australian Dollar (AUD)
It is important to understand how these major currencies influence the market, and how often they are traded. To help you out, in this article we are going to look at the major currencies of forex currency trading, which everyone observing the forex market should be well acquainted with. We will also discuss the characteristics and underlying traits of each currency.
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Currency Nicknames
Nicknames can be helpful in making complex topics more relatable and easier to understand. This is especially true when it comes to foreign exchange rates and the various currency pairs that are traded on the forex market, as a result Traders have given nicknames to the most popular coins and currency pairs.
For example, the euro is nicknamed “fiber” in reference to its fibers 4 consecutive loss-making years. Meanwhile, the EUR/GBP pair is known as the “chunnel” in reference to the Chunnel connecting Britain and mainland Europe. The EUR/JPY pair, meanwhile, is called the “euppy” in a play on words referencing both the euro and Japanese yen. Other notable nicknames include “betty” for the EUR/RUB pair and “nakamoto” for the EUR/BTC pair – named after Satoshi Nakamoto, the inventor of bitcoins.
Ultimately, these nicknames can help make complex concepts more digestible for forex market participants and can even provide some insight into market sentiment towards a particular currency or pair. So, next time you’re reading about fiber or euppy”, don’t be surprised – chances are you’re looking at the euro or EUR/JPY rate!
The US Dollar Currency Trading
The USD is the most popular currency in the world. As the global reserve currency, it is held by central banks and institutional investors around the world. This gives it a lot of liquidity and makes it easy to trade. The USD is also a very stable currency, which makes it attractive to investors who are looking for a safe haven. As the US has a large and well-developed economy, it makes it a safe place to invest and all of these factors make the USD the most popular currency in the world.
The Euro Currency Trading
The euro is the second most traded currency in the world after the US dollar. It is also the second largest reserve currency and is used as the official currency in most European countries. The euro was introduced to global markets on January 1st 1999, with coins and banknotes entering circulation three years later. Although it is still a relatively new currency, the euro has quickly become a major force in global markets.
The Euro is also the most ‘politicized’ currency that is actively traded in the forex market. This means that political events in the European Union can have a large impact on the value of the Euro. For example, countries that have seen their local interest rates fall theatrically at its inception, such as Portugal, Spain, Greece, and Italy, are often more likely to see high trading volumes of the Euro.
The Yen Currency Trading
The Yen is a international currency that is widely used in Forex markets. It is known for its role in the carry trade, which is earning a profit from the gap in interest rates of two currencies. For over two decades, Japan has had a zero-interest rate policy, which has allowed traders to borrow the Yen with no cost and use it to invest in other high-yielding currencies over the world, to pocket the rate differentials.
The carry trade is a major part of the Yen’s international presence. Because it is constantly borrowed, it is difficult to appreciate the Japanese currency. The Yen is still traded with the same fundamentals as other currencies, but its association to international interest rates, exclusively with heavily traded currencies like the Euro and the Greenback, is a major determinant of its value. Consequently, when international interest rates rise or fall, this often has a significant impact on Yen exchange rates.
The Swiss Franc Currency Trading
The Swiss Franc (CHF) is the currency of Switzerland and is considered by many to be a ‘safe haven’ currency. This is due to its stability and low volatility in comparison to other currencies, such as the Australian Dollar (AUD) and the Canadian Dollar (CAD).
The Swiss National Bank (SNB) helps to keep the CHF stable by intervene in the forex market when necessary. In addition, the SNB has a policy of maintaining low interest rates which helps to reduce overall market volatility. As a result, the CHF is often seen as a ‘safe haven’ currency by investors and is commonly used in order to protect against losses in more volatile markets.
The Canadian Dollar Currency Trading
The Canadian Dollar, also known as the Loonie, is a commodity currency that is linked to the movements of precious minerals, metals, and crude oil. Canada is a major exporter of these commodities, and the Loonie experiences extreme volatility to changes in their underlying prices.
Forex traders generally trade with the Canadian dollar when they are hedging their holdings with underlying contracts or to speculate on the movements of these commodities. The Canadian dollar is also closely connected to the U.S. dollar and the U.S. economy, which is why it is highly affected by movements in those markets.
The Great British Pound Currency Trading
The Great British Pound, also known as Pound Sterling, is among the top most traded currencies in the forex market. The GBP also acts like a large reserve currency, because of its relative value compared to other major global currencies.
Following the UK’s department from the EU, a lot of Forex traders will base the value of the Great British Pound with the political stability of its government and the overall strength of the British economy. When making predictions about how well the GBP will do in future Forex markets, it’s important to keep an eye on both domestic and international politics as well as economic indicators.
The Australian Dollar Currency Trading
Australia is one of the top producers of commodities in the world, with vast reserves of natural resources including gold, coal, uranium, and oil. This abundance of resources has made the Australian dollar a popular choice among currency traders.
The Australian dollar is also known as a free-floating currency, meaning that it is not subject to intervention from the Reserve Bank of Australia (RBA). Instead, the value of the currency is determined by market forces. This makes the Australian dollar a volatile currency, which can be attractive to traders looking to make quick profits. However, it also means that the Australian dollar is highly susceptible to changes in the commodity markets. When commodity prices decline, the value of the Australian dollar usually follows suit.
The New Zealand Dollar Currency Trading
The New Zealand dollar is one of the most heavily traded currencies in the global forex market. Around US$105 billion NZD are traded daily, with close to $5 billion in circulation. The Reserve Bank of New Zealand regulates the currency, and it is used as a reference currency in many island territories in the South Pacific, like Tokelau, Nile, Ross Dependency, Pitcairn Islands, and the Cook Islands.
New Zealand has a small population, but the country’s large foreign bank base, high local interest rates, heavy foreign trade, and stable local economy make the New Zealand dollar a very attractive currency for international investors. Consequently, the New Zealand dollar is heavily traded in the forex markets.
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The Foreign Exchange Market
The foreign exchange market is a global decentralized or Over-The-Counter (OTC) market for the trading of currencies. This market determines the foreign exchange rate. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of trading volume, it is by far the largest market in the world, followed by the credit market.
The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends.