As in any market, currency diversification in forex speculation is necessary for creating a profitable investment portfolio. Thus, knowing which currencies are most traded in the foreign exchange market and the factors that affect them is an essential step in trading.
Most traded currencies – US Dollar (USD)
It is one of the most traded currencies in the forex market and the currency of the United States, the largest economy in the world.
The development of the dollar is affected by economic fundamentals, such as domestic production, industry, employment, and unemployment. Also included in its development was news about the US Federal Reserve’s decisions and an announcement regarding the interest rate.
One of the most widely traded currencies is the US dollar as a reference currency for many other currencies, such as the Euro, the Japanese yen, and the British Pound.
Its role was key between 2003 and 2008, but the deterioration accelerated starting in 2007, with the first signs of the financial crisis. Investors need to understand the effects of interest rates, inflation, and unemployment on a currency. The confluence of these factors and real-time information can help determine when the dollar is weaker.
European currency (EUR) Compared to the dollar or the British Pound; the Euro is a slightly underperforming currency. The currency can fluctuate between 30-40 pips during the trading day or up to 60 pips on the most volatile days.
Transactions of currency pairs containing the Euro are more common in the London or the US markets.
The European Central Bank is the financial institution that coordinates the 15 countries in the Eurozone. The European Central Bank is responsible for monetary policy decisions, which play an essential role in developing the European world compared to the dollar or other currencies.
Most Traded Currencies – Japanese Yen (JPY)
Traders use the Japanese yen more in the form of a “carry trade” (a strategy in which an investor sells a specific currency at a relatively low-interest rate and uses the money to invest in another instrument that offers higher returns).
For this reason, the yen is commonly used in transactions with currencies that are more volatile and have better returns, such as the Australian dollar and the British Pound.
In the region, transactions do not exceed 30-40 pips per day; sometimes they reach a maximum of 150 pips. Usually, the currency is mostly traded in London and the United States.
British Pound (GBP)
The British Pound is a bit more volatile than the Euro, as it trades with high volatility during the day.
With fluctuations of 100-150 units, it is not customary to see the pound trading at an initial level of 20 pips.
These fluctuations give the currency excessive volatility, so traders focus on specific pairs, such as GBP/JPY and GBP/CHF. Thus, this currency is often found on the London and US stock exchanges, with slight movements, and on the Asian stock exchange.
Most traded currencies – Swiss Franc (CHF)
Swiss Franc (CHF) Like the European currency, the Swiss Franc is not very volatile in trading sessions. Therefore, the currency’s volatility is up to 35 pips per day. All forex traders are aware of the powerful relationship between the European currency and the Swiss franc. The main reason for this relationship is the influence of the US dollar and the US economy.
The inverse correlation between two currency pairs is also known: when EUR/USD goes up, USD/CHF goes down, and vice versa.
Canadian dollar (CAD)
Canadian Dollar (CAD) Being closely related to most currencies, the Canadian dollar trades, on average, with a daily fluctuation of 30-40 pips.
One of the exciting aspects of this currency is the close correlation with the oil price, as long as the country remains a significant exporter. Hence, many traders and investors use this currency to hedge the price of oil or to speculate.