Foreign exchange trading, or forex, is a popular investment instrument that allows traders to buy and sell currencies in order to make a profit. However, before you can start trading, you need to choose which currencies you want to invest in. In this article, we will explore which currencies are commonly used in forex trading and why.
Major currencies
The most commonly traded currencies in forex are known as the major currencies. These include the US dollar (USD), the euro (EUR), the Japanese yen (JPY), the British pound (GBP), the Swiss franc (CHF), the Canadian dollar (CAD), and the Australian dollar (AUD). These currencies are the most liquid and widely traded currencies in the world, which means that they offer the most opportunities for traders.
The US dollar is the most widely traded currency in the world, and it is involved in approximately 88% of all forex trades. This is because the US dollar is the world’s reserve currency, which means that it is used as a medium of exchange in international transactions.
The euro is the second most widely traded currency in the world, and it is involved in approximately 31% of all forex trades. This is because the euro is used by 19 European countries as their official currency, which makes it an important currency for international trade.
The Japanese yen is the third most widely traded currency in the world, and it is involved in approximately 22% of all forex trades. This is because the yen is used by Japan, which is the world’s third-largest economy.
The British pound is the fourth most widely traded currency in the world, and it is involved in approximately 13% of all forex trades. This is because the pound is used by the United Kingdom, which is one of the world’s largest economies.
The Swiss franc is the fifth most widely traded currency in the world, and it is involved in approximately 5% of all forex trades. This is because Switzerland is known for its stable economy and political system, which makes the Swiss franc a safe haven currency in times of economic uncertainty.
The Canadian dollar is the sixth most widely traded currency in the world, and it is involved in approximately 4% of all forex trades. This is because Canada is a major exporter of natural resources, which makes the Canadian dollar sensitive to commodity prices.
The Australian dollar is the seventh most widely traded currency in the world, and it is involved in approximately 3% of all forex trades. This is because Australia is a major exporter of natural resources, which makes the Australian dollar sensitive to commodity prices.
Exotic currencies
In addition to the major currencies, there are also exotic currencies that are traded in the forex market. Exotic currencies are currencies from emerging economies that are not as widely traded as the major currencies. Some examples of exotic currencies include the South African rand (ZAR), the Brazilian real (BRL), and the Mexican peso (MXN).
Exotic currencies are generally more volatile than the major currencies, which means that they offer the potential for higher returns, but also come with a higher level of risk. Traders who are interested in trading exotic currencies should be aware of the risks involved and should have a thorough understanding of the economic and political conditions in the countries where these currencies are used.
Conclusion
When it comes to forex trading, the currencies you choose to invest in will depend on your trading strategy and risk tolerance. Major currencies are the most widely traded and offer the most liquidity, while exotic currencies offer the potential for higher returns but also come with a higher level of risk. As with any investment, it is important to do your research and understand the risks involved before investing in any currency.
