The 3 Most-Traded Forex Currencies

haven-asset-trading-for-mastertheartofsavingThe world of forex is vast and full of potential. However, this can be a bit intimidating if you’re new to it. That’s why we’ve put together the three most-traded currencies on all of FX. Start learning about and trading these and, in no time, you’ll be able to spread your wings and experiment with other options.

The U.S. Dollar

Easily the most traded of all forex currencies on the planet is the U.S. dollar. It can be found paired with every other major world currency on just about every single platform (at least any worth trading on). The dollar is also used as an intermediary in triangular transactions with other forex currencies.

Will this change any time soon? No, probably not. As long as the U.S. dollar continues to be used as an unofficial reserve currency for the rest of the world, you can expect that this will always top the list of most-traded currencies. It would take a huge global upheaval on the part of every major central bank and institutional investment firm before the U.S. dollar will relinquish the number one spot.

The USD is also used as the standard currency for the majority of commodities like precious metals and oil which holds huge influence.

Furthermore, there’s dollarization, where certain countries have actually adopted the USD as their own currency. There are also plenty of nations where local businesses will accept it without issue.

Lastly, many nations peg their currencies’ values to the dollar. This includes China. Doing so stabilizes the exchange rates for these countries as opposed to letting the foreign exchange market affect it.

The Euro

Second on our list of most-traded currencies is the euro. Though it lacks the history of the U.S. dollar, it has quickly made up for lost time. For one thing, it is the second largest reserve currency in the world and the official currency of most countries in the Eurozone.

These nations and many in Africa peg their currencies to this one for much the same reason as we mentioned with the U.S. dollar; it helps to stabilize exchange rates.

On forex, the big advantage with the euro is the liquidity it immediately brings to any currency it is paired with. Speculators love the euro because of how it reacts to the general wellbeing of the Eurozone. Should there ever be any disturbance amongst member nations, the flux that follows can mean huge profits. For this reason, the euro isn’t just one of the most-traded currencies, it’s probably the most politicized of them all.

The Japanese Yen

The yen and the euro have a lot in common. They are both the most-traded currencies of their respective continents. Like the euro, the yen is used as a barometer for the welfare of the Pan-Pacific region of the world.

Japan’s yen is also taken as an indicator of the strength of the country’s famed manufacturing-export sector. As Japan’s economy grows or shrinks, so too does its currency’s value on the foreign exchange market.

In the world of FX, the yen is known for its function in the carry trade. To put it simply, the currency was basically subject to zero interest for much of the 1990s and 2000s. Traders acted on this by borrowing the yen – again, with zero interest – at almost no additional cost and then invested that money in higher-yielding currency from all over the globe. Doing so gave them a nice sum of money to pocket as the difference.

This has made it very difficult to appreciate the yen and is one of the reasons it will most likely never beat the euro in popularity – at least not any time soon. While it still does extremely well and is traded with the same fundamentals that would be used for any other currency, its relation to international interest rates is a detriment, to say the least.

There you have it: the U.S. dollar, the euro and the Japanese yen. Make these the focus of your FX game plan and you’ll experience success for years to come.

 

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About Jen Perkins

Likes: saving money, being debt free (aside from our house), zombies, travel, getting money, blogging and dogs. Dislikes: debt, being broke, bunnies, wasting money, not having enough money to travel the world and paying interest. Facebook  ♥  Twitter  ♥  Google+  ♥  RSS

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