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HomeFinance and AccountingMarket TradingA guide to the most traded currencies worldwide

A guide to the most traded currencies worldwide

A guide to the most traded currencies worldwide
Photo by John McArthur on Unsplash

In the most explicit sense, currency is money in any form when in movement as a medium of exchange. Trading is the buying and selling of stocks or currency pairs through an exchange.

Forex is the central and most fluid market, with trillions of dollars traded among millions of traders worldwide. In forex trading, all currencies are sold in pairs. A critical step is to first understand the most-traded world currencies.

The US Dollar (USD)

The US dollar is at the top of the list of the 20 most traded world currencies. The USD is one side of a trade currency that pairs with all other major currencies. It often acts as the transitional currency in transactions.

Held by almost every central and commercial bank worldwide, it acts as the global primary reserve currency for daily transactions and investments. Up to 87% of trading volumes globally involve the USD.

The Euro (EUR)

The Euro has been in existence for over 20 years and is the second most traded currency and joins the list of 20 most traded world currencies.

The European Union has 27 member states, out of which 19 use the Euro as the official currency, allowing non-complicated cross border transactions.

EUR/USD tops the most traded currency pair in the forex market. The Euro is a widely trusted currency. Its prevalence in the forex market adds liquidity to any pair it trades with.

The Great British Pound (GBP)

The GBP is also referred to as Pound Sterling. The London trading session accounts for a daily turnover of 40%, making the UK the largest hub for trading. Compared to other global currencies, the GBP acts as a large reserve currency due to its high relative value historically.

The Japanese Yen (JPY)

The JPY is the most active of all the Asian currencies, mainly due to its popularity of the carry trade. The Yen carry trade is when stakeholders borrow the Yen at low-interest rates, acquire higher-yielding currencies worldwide, and profit.

The JPY’s underlying strength is derived from Japan’s export-driven and manufacturing economy. According to the Bank for International Settlements, the Yen has a daily average volume of over $550 million, making up 4.9% of global currency reserves.

JPY is the third most heavily traded currency worldwide. It is known as the safe haven currency because investors cover their currency positions in the stable yen in times of financial market instability and anxiety.

The Swiss Franc (CHF)

The CHF is considered a neutral currency by many. It is also viewed as a safe haven within forex markets as its volatility is controlled. The Swiss National Bank is considerably active in trading to control interest rates to ensure franc trades are maintained within a tight range.

The Canadian Dollar (CAD)

Canada is a massive exporter of precious metals, minerals, and crude oil and responds to commodities prices movements. This makes it the world’s principal commodity currency.

The CAD has a daily average trading volume of $166 billion, making up 2.02% of global currency reserves. About 75% of Canada’s exports go to the United States of America, and 50% of Canada’s imports are from the USA. Therefore, the USA’s economic performance determines the value of the CAD.

What are the top 10 traded currencies?

The top ten traded currencies account for almost 90% of all Forex transactions. Here is a list of the top 10 in 2020:

US Dollar – It is nicknamed the greenback. As the most converted currency globally, a vast majority of commodities are priced in USD, therefore impacting their prices.

Euro – Nicknamed as Teuro in Germany and Pavo in Spanish, it is the world’s second-biggest reserve currency. The Euro has several currencies pegged to it and is used as a trading currency in North Korea, Syria, and Cuba.

JPY – High oil prices drastically affect Japan’s economy. The Yen lost much of its value after World War II and eventually switched to a floating exchange rate many years later, in 1973.

Pound – Nicknamed Quid is the oldest currency still in use today and is the third most held reserve currency worldwide. The UK joined the European Union in 1973 but failed to embrace the Euro as its currency due to its pride and history in the pound.

Australian Dollar – Australia is a significant importer of oil, and the AUD is the fifth most traded currency globally.

Canadian Dollar – Nicknamed the Loonie, the CAD moves with the commodities markets, especially that of crude oil, as a large exporter of the commodity, affecting its value.

Swiss-Franc – The CHF is considered a safe haven due to Switzerland’s low debt and financial stability levels.

Chinese Renminbi – Nicknamed the Yuan, its value relies mainly on the country’s terms of trade. It is one of the world’s reserve currencies.

Swedish Krona – With no Coronavirus lockdown, the Swedish currency has strengthened. It is sometimes referred to as the Swedish Crown.

New Zealand Dollar – The NZD was greatly affected by the plunging of oil and equity markets due to the economic fear caused by the Coronavirus crisis.

What are the 5 most used currencies in the world?

The US Dollar is issued by the Federal Reserve and is the most used currency in the world.

The Euro is issued by the European Central Bank and ranks second in most used currencies worldwide.

The JPY, ranking third, is issued by the Bank of Japan.

The Pound, ranking fourth, is issued by the Bank of England. However, Sterling banknotes issued by other authorities are not regulated by the Bank of England but are instead guaranteed by the issuing governments for conversion at parity.

At number five, the Australian Dollar is produced and issued by The Reserve Bank, which safeguards the citizen’s confidence in the currency.

Which is the most traded forex market in the world

There are four trading sessions on the forex market: the London session, the Tokyo session, the Sydney session, and the New York session.

Geographically, the largest trading centre is in the United Kingdom, principally London. Foreign exchange trading in the UK accounts for 43.1% of the entire market.

Top 10 most traded currencies in the world

Following the Covid-19 pandemic that negatively impacted the economy worldwide, emerging market currencies were the hardest hit.

Investors are hesitant to risk their finances on weaker currencies, meaning the current top 10 most traded currencies in the world are unlikely to change soon.

  • US Dollar (USD)
  • Euro (EUR)
  • Japanese-Yen (JPY)
  • Pound (GBP)
  • Australian Dollar (AUD)
  • Canadian Dollar (CAD)
  • Swiss-Franc (CHF)
  • Chinese Renminbi (CNY)
  • Swedish Krona (SEK)
  • New Zealand Dollar (NZD)

The most-traded currencies in the world

  • US Dollar
  • Euro
  • Japanese-Yen
  • GBP
  • Australian Dollars

The 5 Most traded currency pairs in 2020

EUR/USD – The most traded pair as it has the lowest spread and isn’t very volatile. If you’re looking to take minimal risks, it is most likely the best pair to trade.

GBP/USD – This is a volatile pair, making it quite profitable due to the large jumps in pips. However, you have to take more significant risks to enjoy higher profits.

USD/JPY – A popular trading pair, it exhibits a smooth trend credited to low spreads. It can deliver thrilling opportunities in forex pair.

EUR/GBP – An exciting pair due to its sharp fall and rises in support, and resistance levels. This year, any Brexit news will impact its volatility.

USD/CAD – The close economic relationship between the two countries is displayed in this pair’s smooth pattern. It may demonstrate startling moves and robust volatility towards the end of the year due to the US Presidential elections.

Major Pairs: A guide to the most traded Forex Pairs

The major trade pairs, as identified above, are the most versatile for forex traders. They are most attractive as they signify the most lucrative and steady economies globally. Traders take advantage of their low spreads that precisely represent market value.

However, knowing the most traded pairs is not enough. Research and understand the intricate details and determinants that cause each pair to experience volatility before engaging in actual trading.

There is a lot of information on each pair available online. It is also essential to keep updated with news that may affect a country’s currency.

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