What are the 8 most traded currencies?
In the currency markets, a few currencies dominate the list when it comes to occupying the top spot. This is partly due to the fact that most of these currencies belong to some of the major developed economies in the world.
Also, contributing to the fact is that these currencies also enjoy a free floating exchange rate. As a result, the exchange rate among these eight currencies are set by the open markets.
Trade is also one of the biggest contributing factors that makes these currencies the most commonly traded currencies in the world. Here is a list of eight major currencies in the world.
1. The U.S. dollar
The USD, or the Greenback is the most widely traded currency in the world. This is due to the fact that the USD enjoys the status as the world's reserve currency.
Most of the trade in the global markets takes place in USD. As a result, many economies, both developed and emerging markets tend to buy a lot of U.S. dollars in order to facilitate not only trade but also to shore up their foreign exchange reserves.
According to the Bank of International Settlements, the USD is the most widely traded currency in the world. The daily average turnover in the over the counter foreign exchange instrument for the USD amounts to 4.4 trillion.
Within this turnover, the foreign exchange swaps dominate the top spot accounting for 2.3 trillion in turnover. The spot transactions come in at a close second at 1.6 trillion.
Economies across the world purchase and sell the USD's in order to maintain not just their foreign exchange reserves but also to maintain their exchange rate pegs.
Since many emerging economies peg their exchange rate to the U.S. dollar, these economies need to constantly buy the USD in order to maintain the peg to the dollar.
The USD is also the currency used for commodity transactions. Buying and selling of commodities such as oil, gold and other metals take place in USD which also adds to the demand.
According to data from the U.S. Federal Reserve, there was approximately $1.70 trillion in circulation as of January 23, 2019 of which $1.66 trillion was in Federal Reserve notes.
2. The euro
The euro is the shared currency for 19 countries in the European Union. The countries include some big economies such as Germany, France, Italy, Spain, Greece, Netherlands, Portugal, Austria and Belgium.
The euro is the second most widely traded currency in the world by turnover and comes next to the U.S. dollar. The euro is a new currency which was launched in 1999, January 1. Eleven member states of the European Union adopted the euro on that day, which is also known as the shared or the common currency.
The Bank of International Settlements show that the average daily turnover for the euro currency is 1.5 trillion.
Again, the forex swaps markets accounts for the majority of the turnover accounting for 807 trillion followed by the spot market transactions which account of 519 trillion.
The euro currency is currently seen contending for the top spot as the world's reserve currency. Over the years, more and more countries in the European union are lining up to join the share currency bloc.
As of 2017, 1.12 trillion euro worth of banknotes and coins were seen in circulation.
3. The Japanese yen
The Japanese yen is the official currency for Japan, an export oriented currency in Asia. At one point, Japan took the status of being the world's second largest economy. However, with the rise of China's economy, Japan's economy fell to the third spot.
Due to the fact that the Japanese yen is the currency for an export oriented country it is cheaper compared to most of the currencies. The yen also enjoys the status of being a safe haven currency.
The Bank of International Settlements shows that the yen is the third most widely used currency boasting of an average daily turnover of 1.09 trillion. The foreign exchange swaps account for close to 458 trillion followed by the spot forex transactions account for 649 trillion.
The yen maintains its popularity due to the fact that it is a safe haven currency. This means that during times of financial turmoil, investors turn to the yen and shore up its exchange rate.
The reason behind the yen's status as a safe haven currency is partly due to the fact that the economy is the largest creditor nation in the world. The total value of foreign assets held by Japanese investors overshadows that of the domestic assets owned by Japanese investors.
Japan is also the most heavily debted nations in the world. Its public to GDP ratio stands around 238 trillion according to some publicly available sources.
In 2016, statistics showed that there was about 107.2 trillion Japanese yen in circulation.
4. The British pound sterling
The British pound sterling is the currency of the United Kingdom. At one point it was considered to be the world's oldest currency. The GBP is also a currency that is shared among a few island nations. The United Kingdom is the fifth largest economy in the world.
By daily turnover, the Bank of International Settlements put the GBP as the fourth most widely traded currency in the world. The daily turnover was recorded at 649 trillion with the spot transactions accounting for 211 trillion.
The British pound sterling has historically enjoyed a higher exchange rate to the U.S. dollar. This comes despite the United States having a larger economy compared to Great Britain.
The United Kingdom was a member of the European Union up until 2016 when it decided to break away from the economic bloc. Since then, the value of the British pound has been steadily declining.
Recent data showed that there was a total of 68.9 billion GBP in circulation as of 2018.
5. The Australian dollar
The Australian dollar is another widely traded currency. It spans across continents both in Europe and in Asia. The Australian dollar is also known as a commodity currency. This is due to the fact that the economy depends heavily on export of raw materials.
In the recent years, the Australian dollar was seen shifting from an export oriented economy into a service based economy. While this shift is still in process, the recent slowdown in China’s economy has led to the Australian dollar weakening.
Data from the Bank of International Settlements show that the AUD has a daily turnover of 348 billion.
During the rise of the Chinese economy, demand for raw materials from Australia increased greatly. This led to a strong appreciation of the Australian dollar's exchange rate.
Statistics show that over 76.7 billion AUD was in circulation at the end of January 31, 2019.
6. The Canadian dollar
The Canadian dollar is the currency for Canada. Canada ranks as the tenth largest economy in the world as of 2018. The Bank of International Settlements record that there was 260 billion in average daily turnover with the swaps markets obviously taking the top spot.
The Canadian dollar is also a commodity currency which relies quite a bit on exports of Crude oil. As a result, the Canadian dollar is seen to closely track the price of crude oil. Due to its proximity with the United States, Canada also enjoys close trade relationship with the United States.
It is estimated that there was about $64.40 billion of Canadian dollars in circulation.
7. The Swiss franc
The Swiss franc is the currency of Switzerland. Similar to the yen, the Swiss franc also enjoyed the status of a safe haven currency.
However, in recent years since the start of the financial crisis the Swiss National bank has been steadily intervening in the foreign exchange markets in order to stem the currency from appreciating.
The Swiss economy is an export oriented economy and enjoys close trading relations with the European Union. The Bank of International Settlements show that the CHF enjoys a daily average turnover of 243 billion.
8. The Chinese Yuan
The Chinese yuan is the currency of China. China currently enjoys the status of the world’s second largest economy. Despite this meteoric rise, the CNY or the CNH is not that high in terms of the world’s most widely used currency.
The Chinese yuan is available in two versions. The onshore yuan and the offshore yuan or the Renminbi. The CNY is closely pegged to the U.S. dollar and is allowed to trade within a band.
The Bank of International Statistics puts the Chinese yuan as the eight most widely traded currency. The daily turnover is estimated to be around 202 billion as of 2016. However, it is likely that the volume of transactions has increased a lot more since the last survey.
What are the 7 major currency pairs?
Now that we have a fair idea of the top eight currencies in the world when it comes to retail forex trading, there are seven most popular currency pairs in the world. The currencies of the world are categorized into three categories.
Major currencies are the ones that enjoy the highest liquidity. These currency pairs are formed by the most commonly traded currencies in the world. Following this, the minor currencies are those that are a combination of one major currency and one minor currency.
The minor currency pair, as the name suggests has lower liquidity and has higher spreads.
Here is a list of the most major currency pairs that are commonly traded.
The EURUSD is the first major currency pair. This is the most liquid of all currency pairs as it combines the U.S. dollar and the euro currency. By some estimates, the EURUSD has a daily turnover of about 575 billion in USD.
The EURUSD currency pair amounts for nearly 20% of the total spot forex transactions.
The USDJPY is the second major currency pair. This currency pair combines the U.S. dollar and the Japanese yen. The USDJPY amounts for nearly 14% of the total spot forex transactions. In terms of volume, the USDJPY enjoys a daily turnover of about 577 billion in USD.
In the retail trading world, the USDJPY is seen as a currency pair that reflects the market sentiment.
The AUDUSD is a commodity currency pair and is known to closely track the general trend in the commodity markets such as metals. The AUDUSD is very liquid and accounts for close to 10% of the total forex trading volume. The AUDUSD currency pair is referred to as the Aussie.
The USDCAD is also a commodity currency but the performance of the currency tracks the trends in the oil markets. The USDCAD accounts for close to 8% of the total trading volume. The USDCAD is commonly referred to as the Loonie.
Although the GBP ranks higher than the AUD or the CAD in terms of being more widely used, the GBPUSD ranks number 5. The currency pair, commonly called the Cable accounts for 7.5% of the total forex trading volume.
The NZDUSD is the currency pair that is formed by the New Zealand dollar and the U.S. dollar. The NZDUSD is known as the Kiwi. The NZDUSD currency pair accounts for close to 6% of the total trading volume in the forex markets.
The GBPJPY is the currency pair tracking the exchange rate of the British pound and the Japanese yen. It is commonly referred to as the Guppy. The GBPJPY accounts for close to 5.5% of the total trading volume in the forex markets. The GBPJPY is known to be very volatile and can exhibit sharp moves in the markets.
The EURJPY is the currency pair that tracks the exchange rate of the euro and the Japanese yen. The EURJPY is the eight major currency pair and it accounts for 5.6% of the total trading volume in the forex markets. Similar to the GBPJPY, the EURJPY is also a volatile currency pair.
What are the best trading currencies?
As a forex trader, you might be wondering what is the best trading currencies? The answer to this depends on a lot of factors. For one, as traders, you need to look for some key aspects when choosing the best trading currencies.
- Liquidity and volume
When a currency pair is highly liquid based on the higher volumes, you can expect to see tighter spreads in the market. This will lead to lower costs of trading. For example, the tighter spreads you see in the major currencies will mean that you will have to pay lower trading costs.
With higher volume, you can also enjoy higher liquidity. Liquidity is nothing but the ability to convert your open position into cash and vice-versa. When a currency pair has high liquidity, it becomes easy to trade. This is particularly useful for day traders who buy and sell many times during the day.
volatility is also another key factor to bear in mind. When a currency pair is not volatile enough, you can expect price action to remain trading sideways for the most part. A currency pair with high volatility can create tremendous trading opportunities. This high level of volatility allows day traders to trade with ease.
However, volatility should not be too high as it can create erratic market moves. When a currency pair enjoys higher liquidity and volume, the volatility is moderate but just right enough to make the appropriate profits while trading.
Based on the above, some of the best trading currencies are:
The reasons for this is the fact that each of these currency pairs firstly are very liquid. At the same time, these currency pairs belong to some of the most developed economies in the world. Therefore, the currency pairs have a good trading volume and are also volatile allowing for good trading opportunities.
It is up to the trader to decide which of these currency pairs to trade. For example, if you are living in Europe, then trading the EURUSD or the GBPUSD is more ideal. Likewise, if you are living in Asia, trading the AUDUSD or the NZDUSD is more logical as you can track the local developments based on the economic calendar schedules.
What is the most widely used currency?
Now that we have discussed the most traded currencies and the top currency pairs, can you guess what is the most widely used currency?
The answer to this is of course, the EURUSD. The EURUSD currency pair combines two biggest economies which are also highly developed. Because of the currencies that are used in this currency pair, traders and investors alike closely follow the daily exchange rates of the EURUSD.
The exchange rates are used not just for speculation but also in the equity markets. Investors in both these economies tend to cross invest in the other economy. As a result, the exchange rate for the EURUSD is closely followed.
The central bank policies set by both these respective economies such as the United States Federal Reserve and the European Central bank have widespread repercussions.
Although the European Union’s economy is not as large as compared to China for example, the fact that the economy is shared by 19 other countries is something that cannot be ignored. Therefore, the euro makes for an important currency.