subject: Forex Trading: Currency Basics [print this page] Most traded currencies Most traded currencies
According to the volume of trades, we have to say that the most traded currency is USD with approx.85% of all Forex transactions. The euro is involved in more than 35% of the transactions, and the Japanese Yen is the third, with more than 15%.
Major Currencies
US Dollar (USD): The US dollar is involved in over 85% of all currency trades. The Treasury and Federal Reserve have favored a strong dollar for the past two decades, and occasionally, interventions are applied to support this policy.
Euro (EUR): The Euro is the European Union official currency. It is the second currency of the world for transactions and the second currency negotiated as a foreign currency after the Dollar. On the Forex market the Euro represents about 20% of the currency sales and purchases concluded each year. In 2006, the Euro turned into the first currency in the world according to the number of notes in circulation.
Japanese Yen (JPY): The Japanese yen is a key indicator for Asian strength or weakness. Having said that, economic crises or political instability in other Asian economies can often have a dramatic impact on the yen spot movements. The yen is closely monitored by the single most important political and monetary institution in Japan, the Ministry of Finance.
Great British Pound (GBP): The GBP has always played a significant role in the FX market and accounts for approximately 6% of the worlds currency trading volume. Although its presence is not as evident as other currencies, it maintains a strong presence when compared to the Euro and the USD.
Confederatio Helvetica Franc (CHF): Switzerlands neutral political status makes the CHF a safe currency to trade. During international chaos involving countries outside of Europe, the Swiss franc is the second safest choice against the US dollar.
Canadian Dollar (CAD): The Canadian economy is highly dependent on gold and oil, so price movements in these commodities greatly affect the value of the CAD. Additionally, since the United States is the biggest trading partner of Canada, the U.S. economy exerts a strong influence on the CAD.
Second-tier Currencies
These currencies are freely available, but on the spot market the may have a little liquidity from time to time. These currencies include:
Norwegian Crown
Danish Crown
Swedish Crown
Australian Dollar
New Zealand Dollar
Exotic Currencies
These are the currencies that are not traded very frequently because of the little interest. They also have very little liquidity. Singapore dollar, Polish zloty or Czech crown are the examples of those currencies.
When trading Forex, the currency pairs are always traded. Some of them have huge liquidity, which is given to them by the status of both currencies in terms of world importance. Other currency pairs are traded modestly, and therefore investors and speculators are usually not interesting in trading them.
Currency Pairs
Trading currency pairs means buying the unit of a currency A for the equivalent amount of a currency B. An exchange rate is usually quoted in terms of the number of units of one currency that can be exchanged for one unit of another currency. Currencies are traded in pairs, for example, the euro and the dollar (EUR/USD) or the Japanese yen and British pound (GBP/JPY).
Cross Currency Pairs
Cross Currency Pair is the currency pairs that do not include the US Dollar. One foreign currency is traded for another without having to first exchange the currencies into American dollars.
EUR / JPY
EUR / GBP
EUR / CHF
GBP / CHF
GBP / JPY
An individual who wished to exchange a sum of money into a different currency would be required to first convert that money into US dollars, and then convert it into the desired currency; cross currencies help individuals and traders bypass this step.
Currency Pairs Terminology (Slang)
EUR / USD "Euro": The EUR/USD is the most liquid currency pair in the world and its movement is used as the primary gauge of both general European and US strength/weakness
USD / JPY "Dollar Yen"
GBP / USD "Cable" or "Sterling"
USD / CHF "Swissy"
USD / CAD "Dollar Canada": (CAD referred to as the "Loonie")
AUD / USD "Aussie Dollar"
NZD / USD "Kiwi"
by: Jeremy Lancom
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