Forex is centrally the most liquid and spot (cash) market. Forex has daily transactions surging above the US $6.5 trillion between various parties worldwide, according to the Bank of International Settlements (BIS). In Forex, you buy and sell currencies as a pair.
Below, you can read about the most heavily traded currencies on the Forex market, which account for nearly 90% of all the global trades according to the BIS.
#1: United States Dollar (USD)/(US$)
For many reasons, USD is the most highly traded currency worldwide. It is America’s official currency, and according to statements by the BIS, it is involved in $2.2 trillion of daily global transactions.
The USA has the world’s most powerful and sound economy. Much of the international trades thrive due to America. With the vast number of commercial and central banks around the world holding bulk amounts of USD in reserve currency, the demand for USD rises further.
Many commodities (oil, coal, copper, gold, etc.) set their values in USD. Many major currency pairs of Forex trading consist of the “greenback”, i.e. US Dollar. Some countries use the US Dollar as their official currency. Other countries treat the US Dollar as the de facto currency.
#2: Euro (EUR)/(€)
Following the USD, EUR is the second largest traded currency. The USD/EUR currency pair tops Forex market trading. It is the currency of all but one country currently part of the European Union. It allows border-free transactions through the eurozone. The economic and political prospects of the European “bloc” influence the EUR.
It is the second-largest currency to be stored in vast amounts in central and commercial bank reserves around the globe, making up a staggering 20 per cent of it. This is after the USD, which comprises 63% of the currency reserves in the said banks. This is, according to BIS, 2019. The Euro has been around for 20 years and remains subject to the monetary policies of the bloc.
#3: Japanese Yen (JPY)/(¥)
The highest traded Asian currency holds the third rank among the most traded currencies in the Forex market. Issued by Bank of Japan, it has the third-largest world currency reserve. According to BIS 2019, JPY’s daily global trade volume comprised over five-hundred million USD.
Investors tend to perform carry-trades using the JPY. They do this by borrowing JPY at very low-interest rates and then invest in other high-performing currencies of the world. This yields them great profits because of the differences between the two countries’ interest rates. Japan is a high importer of oil, so oil prices influence the value of JPY as well.
Economic prospects of Japan play a vital role in influencing the JPY. While Japan is one of the largest exporters of manufactured goods, the Chinese export industry competes intensely with Japan. Thus, the influence of Chinese currency on the JPY is also probable.
#4: UK Pound Sterling (GBP)/(£)
UK’s rough relationship with Europe is currently affecting its official currency, Pound Sterling. Nonetheless, it is still the fourth largest traded currency of the Forex market. BIS indicates that the daily average turnover of the GBP is over $325 million.
GBP holds a high significance as a historical currency of the world. It also accounts for the fourth largest currency reserve in the world. However, due to the decision of the UK to leave the BREXIT, the UK pound sterling’s value is subject to variations.
#5: Australian Dollar (AUD)/(AU$)
The Australian Dollar represents the commonwealth of Australia. BIS states that AU$ is the 5th ranking currency in terms of Forex trading, mainly under the pair of AU$/US$.
Once more, the currency is subject to influence by commodities. Australia is one of the largest exporters of mineral commodities, so the demand for said commodities affects the currency. The Australian Dollar takes a total of 6.94% among the most traded currencies in the world.
Moreover, Canadian Dollar stays side by side with the AUD. This is because Canada heavily relies on the export of commodities, mainly oil.
You’re probably wondering how information about the world’s top trading currencies is useful to you. Well, the answer is simple. As a Forex trader, you have to maintain knowledge of major factors that influence the Forex market.
Ultimately, knowing the best currency pairs helps you make better investing and trading decisions. While the margin for such trading may be low, it offers great security.