The forex market is a huge market and you’ve got a lot of choices when it comes to the number of currencies you can trade. However, you only have to focus on a number of currencies to trade profitably in this market.
Let’s get to know these top currencies.
There’s no question about it. The US dollar takes the spot as the most popular currency to trade in the forex market. It’s the King, so to speak.
For one, it’s the world’s reserve currency, making it the most traded currency in this gigantic market. It’s not surprising to find the USD in all of the major currency pairs in the market.
This is also the reason why some countries also use the dollar as their official currency in lieu of a local tender.
The euro comes second to the greenback as the world’s reserve currency. It was introduced to the world in January 1, 1999.
The eurozone nations use this currency as their official tender. This gives the currency higher liquidity in the forex market.
Speculators and those who seek volatile actions in the forex market take the euro as one of their favorites. This is particularly obvious in times of political instability in the eurozone.
British Pound, or Sterling
The royal currency is also a frontrunner in the game. It’s among the largest-volume currencies traded in the forex market.
Traders use pound the as another currency benchmark for many countries. It’s also very liquid, but at times volatile.
It has close ties with the euro. Forex traders use the United Kingdom’s overall economic condition as indicators of the British pound’s movement.
Recently, the royal currency experienced huge shifts in volatility as a result of the Brexit fiasco—a decision wherein the UK leaves the European Union trading bloc.
Over in Asia, the Japanese yen dominates as the most traded currency. The yen largely reflects the economy of the export and manufacturing-dependent Asian economy.
Traders often use the yen to gauge the overall condition of the broader Pacific region, with some variables coming from South Korea, China, and Singapore.
The yen is also largely famous in the forex market for its carry trade functions. The country has zero interest rate policy for decades. It’s also considered as the world’s leading safe-haven currency.
Who could forget the neutral attitude of Switzerland? Anyway, the Swiss franc is also largely seen just like that.
The Swiss franc is also a safe-haven currency, meaning it usually remains robust and strong even in—especially in—times of economic uncertainty and turmoil.
The Swiss franc moves in negative correlation to more volatile commodity currencies like the Australian or Canadian dollar.
Another interesting point for the Swiss currency is that the Swiss National Bank often ensures that the country’s currency trades in a tight range and with reduced volatility.
The Canadian dollar is the world’s topmost commodity currency, meaning movements in the commodity markets, in crude oil, precious metals, and minerals have a great impact on the value of this currency.
Thus, traders often speculate on the prices of commodities using the Canadian dollar. They also often use it as a hedge when holding contracts with commodities as underlying assets.
The Canadian dollar also has higher correlation with the US economy because of its proximity to the American economy.
Overall, these are the top currencies that traders should pay attention to in order to guarantee profitable trades. These currencies also make for flexible trading strategies when partnered with each other.