The forex market is the perhaps the most lucrative market for traders. For newbie traders, one of the first steps to do is to be familiar with the more commonly traded currencies in the market. You should also get to know their popular uses. The following are the most popular currencies for trading that you should definitely try.
The US Dollar
The US dollar is basically the most traded currency in the world. The dollar can be found paired with all the other major currencies and often serves as intermediary between two other non-dollar currencies.
Also, the US dollar is the world’s global reserve currency that is held by nearly all central banks and institutional entities in the world.
Also, because the US dollar is accepted globally, some countries in the world use the dollar as their official currency in lieu of a local tender, which is a practice called dollarization.
The US dollar may also be widely accepted in other nations to act as an informal alternative form of payment while the country maintains their official local currency.
Newbies should also understand that the dollar is also used as the standard currency for most commodities like crude oil and precious metals.
Therefore, a rise in commodities are subject not only to supply and demand dynamics but also the relative value of the US dollar.
The euro has become the second most popular currency behind the US dollar after becoming the official currency of the majority of the nations within the European Union. It was introduced to the world in January 1, 1999 and started circulating three years after.
Also, many nations in Europe and Africa peg their currencies to the euro to stabilize their exchange rates. The same is also done with the dollar.
Since the euro is being widely used and trusted, it is very prevalent in the forex markets and adds liquidity to any currency pair that it trades with.
The euro is commonly traded by speculators as a play on the general health of the eurozone and its member nations.
The political events within the eurozone usually leads to huge trading volumes for the euro, particularly in comparison to the nations that saw their local interest rates fall drastically when the euro was born.
The Japanese Yen
The Japanese yen is the most traded currency in Asia and is considered by the markets as the proxy for Japan’s manufacturing and export-reliant economy’s underlying strength.
Many traders use the yen as a tool to gauge the overall health of the pacific region as well, including the economies of South Korea, Singapore, and Thailand into consideration.
The yen is also very popular in the forex markets for its role in carry trading, which is the act of trying to profit from the difference in interest rates between two currencies.
Japan basically has zero interest rates for more than two decades, and traders have been borrowing the yen for nothing and using it to invest in higher yielding currencies around the world.