The 5 Most Popular Trading Currencies In The World

The 5 Most Popular Trading Currencies In The World

Preface

Forex is the largest and most liquid market, with trillions of dollars traded globally every day. The 1st step in understanding the foreign exchange market (or currency trading) is to recognize the commonly traded currencies. Below are the 5 most frequently traded currencies in the world, along with the basic features and characteristics of each currency.

The 5 most popular trading currencies in the world

US dollar (USD)

The U.S. dollar is the currency of the United States, the world’s most powerful country, both economically and militarily, and the credibility in the market is very high. As a global currency, it is used in trade and financial transactions in the world. In addition, the U.S. dollar is also the main reserve currency of central banks around the world. Because the U.S. dollar is involved in transactions all over the world, it is very liquid. When the market avoids risk, besides the Japanese yen and Swiss franc, the dollar also has the characteristics of a safe-haven currency. Because the U.S. dollar is the currency of the U.S., Federal Reserve policy and U.S. economic indicators have a big impact on the U.S. dollar. The U.S. dollar and the gold market tend to have a negative correlation. That is, the dollar rises then the gold price falls, while the dollar falls then the gold price rises.

Euro (EUR)

The 7 countries that have joined the European Union is using euro. It is not controlled by a single government, has a high degree of stability, and is managed by the central bank of the euro area, the ECB (European Central Bank). The euro is the second most traded currency in the world after the dollar. In addition to being the second international currency in the world, the euro, whose liquidity is second only to the US dollar, is also second only to the US dollar among the reserve currencies of central banks.

The euro accounts for the largest proportion of the US dollar index. It can be regarded as the counterparty currency of the US dollar. The EURUSD currency pairs are the most liquid. The health of the European and American economies can be measured from its fluctuations.

Pound (GBP)

The pound is the national currency name of the United Kingdom. The foreign exchange market code is GBP. It is the fourth major currency in circulation in the world, after the top three currencies: the US dollar, the euro and the Japanese yen. In the foreign exchange market, GBP/USD  is also one of the top currency pairs in the global foreign exchange market. They are “GBP” in the United Kingdom and “USD” in the United States. It is mainly issued by the Bank of England and denoted by the use of the symbol “£”. The pound is one of the currencies that has a strong positive correlation with the euro. In addition, it is also has a correlation with the crude oil market. The volatility of the pound is relatively strong, because there are many human factors, especially short-term fluctuations, which are less suitable for investors who lack experience and skills.

Japanese Yen (JPY)

The trading volume of USD/JPY in the world foreign exchange market is 18%, ranking second only to EUR/USD among various currency pairs. USD/JPY has a high liquidity. Currency pairs with high liquidity are more stable in volatility. That’s why they are very suitable for beginners. Japan’s financial system is also relatively stable, with a current account surplus and low inflation, often bought as a safe-haven currency. The Japanese yen is the currency with the lowest interest rate and is the preferred currency in carry trades. However, March is a sensitive period for yen fluctuations. It is the settlement month of Japan’s fiscal year, which leads to a surge in demand for the yen and appreciation. September is the semi-annual fiscal settlement month, and there may also be large fluctuations.

Australian dollar (AUD)

The Australian dollar is the representative currency of resource countries, while Australia is one of the world’s leading resource countries and is representative among the currencies of resource countries, more than half of its exports are mineral resources such as iron ore and coal. Therefore, there is also a correlation with the commodity market.

Although the Australian dollar has the 5th largest trading volume in the world, its trading volume is not very large. Because of low liquidity, it is prone to large fluctuations when the market changes. Since China is the largest exporter of Australian resources, they are closely related. That’s why the China’s economy always affects the price fluctuations of the Australian dollar easily. Therefore, when trading the Australian dollar currency pair, it is better to pay attention to China’s economic indicators and the commodity market.

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