The foreign exchange (forex) market is the largest and most liquid financial market in the world. It operates 24 hours a day, allowing traders to engage in currency trading around the clock. Among the vast number of currency pairs available, there are eight currencies that are most commonly traded due to their economic stability, liquidity, and influence in global trade. This article explores these eight currencies, providing traders—both new and experienced—with insights supported by real-world data and trends in the forex market.
Introduction
In forex trading, currency pairs are categorized into three types: major, minor, and exotic pairs. Major currency pairs, which always include the U.S. dollar (USD), account for the majority of trades in the forex market. This article focuses on the most tradable currencies globally, all of which belong to major economies with substantial trade volume and liquidity.
Understanding these currencies can help traders make more informed decisions based on market trends, historical data, and industry feedback. Let’s delve into the eight most tradable currencies and why they hold significant value in the forex market.
1. United States Dollar (USD)
The U.S. dollar is the most traded currency in the world, accounting for roughly 88% of all forex transactions. As the global reserve currency, the USD plays a pivotal role in international trade and finance. The currency is often involved in safe-haven trades during periods of economic uncertainty. According to data from the Bank for International Settlements (BIS), the USD remains the dominant currency across all major currency pairs, including EUR/USD, USD/JPY, and GBP/USD.
Factors influencing the value of the U.S. dollar include interest rates set by the Federal Reserve, inflation data, and geopolitical events. The USD’s liquidity makes it attractive for traders looking for stable returns and ease of transaction.
2. Euro (EUR)
The euro is the second most traded currency, representing approximately 32% of all forex trades globally. As the official currency of 19 of the 27 European Union member countries, the euro is integral to international trade and investment. The EUR/USD pair is the most liquid forex pair, heavily traded by institutions and retail traders alike.
The euro's value is influenced by monetary policies from the European Central Bank (ECB), economic reports from EU member states, and political developments within the region. Economic stability in countries like Germany and France significantly affects the demand for the euro.
3. Japanese Yen (JPY)
The Japanese yen is the third most traded currency and a popular choice among traders due to its status as a safe-haven asset during periods of market volatility. With around 16% of the forex market share, the JPY is often traded in pairs like USD/JPY and EUR/JPY.
The yen’s strength is closely linked to Japan's low-interest-rate policies, driven by the Bank of Japan. Traders frequently use the yen in carry trades, where they borrow in yen (due to its low rates) and invest in higher-yielding currencies.
4. British Pound (GBP)
The British pound, also known as sterling, is one of the oldest currencies still in use and is the fourth most traded currency in the forex market. It accounts for about 12.8% of global forex trading. The GBP is known for its volatility, offering significant opportunities for traders.
Political and economic factors such as Brexit, interest rate changes from the Bank of England, and economic data from the United Kingdom influence the GBP’s value. The GBP/USD pair, often referred to as “cable,” is one of the most popular trading pairs.
5. Australian Dollar (AUD)
The Australian dollar ranks fifth among the most traded currencies, driven by Australia’s commodity-driven economy. It represents around 6.8% of the total forex market volume. The AUD is closely tied to the export of natural resources like coal, iron ore, and gold.
As a result, the Australian dollar is heavily influenced by commodity prices, trade relations with China, and domestic economic policies. Traders often use the AUD in conjunction with commodity price movements to predict currency fluctuations.
6. Canadian Dollar (CAD)
Known as the “loonie,” the Canadian dollar is another commodity-linked currency, particularly tied to oil prices. It accounts for approximately 5% of forex market transactions. The USD/CAD pair is the most popular for trading the Canadian dollar, and the currency’s value is often correlated with fluctuations in crude oil prices.
The Bank of Canada’s monetary policies, employment data, and GDP growth are key drivers of the CAD. Traders interested in commodities frequently trade the Canadian dollar as part of their investment strategy.
7. Swiss Franc (CHF)
The Swiss franc is known for its stability and is often considered a safe-haven currency during times of geopolitical unrest or economic downturns. Although Switzerland is a small country, its currency accounts for about 5.2% of the global forex trading volume.
The Swiss National Bank (SNB) plays a crucial role in managing the currency, often intervening in the forex market to maintain the CHF’s value. The currency is most commonly traded in pairs like EUR/CHF and USD/CHF.
8. New Zealand Dollar (NZD)
Rounding out the top eight most tradable currencies is the New Zealand dollar, accounting for about 2.1% of forex trades globally. Like the Australian dollar, the NZD is heavily influenced by commodity prices, particularly dairy and agricultural exports.
The Reserve Bank of New Zealand’s monetary policies and trade relations with Australia and China are significant factors in the NZD’s value. The NZD/USD pair is widely traded by both institutional and retail traders.
Key Market Trends and Insights
The forex market is continually evolving, driven by geopolitical events, central bank policies, and macroeconomic indicators. According to the BIS 2022 Triennial Central Bank Survey, forex trading volume reached $7.5 trillion per day, with major currencies like the USD and EUR dominating most of the transactions. Traders have also increasingly turned to algorithmic trading and forex robots to capitalize on short-term movements in these highly liquid currencies.
User feedback within the industry points to a growing interest in trading commodity-linked currencies like the AUD and CAD, particularly as global demand for natural resources fluctuates. Similarly, the popularity of the Japanese yen as a safe-haven asset remains strong, particularly during market corrections.
Conclusion
In forex trading, understanding the most tradable currencies is essential for navigating the global market. The eight currencies outlined in this article offer traders opportunities to leverage liquidity, volatility, and macroeconomic trends. From the dominant U.S. dollar to the commodity-driven Australian and Canadian dollars, these currencies form the backbone of the forex market.
Whether you are a new or experienced trader, staying informed about currency movements, central bank policies, and geopolitical developments is key to making profitable trades. As you venture into forex trading, consider utilizing reliable forex platforms to enhance your trading strategy and stay up-to-date with the latest market trends.
