There is a variety of currencies on Forex, but only a few are the most traded ones. Keep reading and you'll find out which currencies receive the maximum trading volume.
US dollar, Euro, Japanese yen are in the top three among the most traded currencies. The currency pairs including these currencies are the bulk of transactions in the Forex market.
Every three years BIS conducts and publishes statistics on the Forex turnover as well as the turnover of currencies and currency pairs. The BIS Triennial Central Bank Survey is the most comprehensive source of information on the Forex and OTC derivatives market.
BIS (Bank for International Settlements) is an international financial institution, a "bank for central banks". The head office of the BIS is located in Basel (Switzerland). The most recent survey was conducted in April 2016. Below are presented the results.
So let's get to the most traded currencies.
The US dollar – USD
The US dollar is denoted by the USD or by the "$" symbol and controlled by the Federal Reserve System. It is the leader in the foreign exchange market, more than half of all transactions account for the dollar. Following the results of 2016, nearly 88% of the transactions involve dollar.
What is the reason for such popularity? The American economy is one of the largest in the world, and the United States is one of the most influential countries in the world. The US dollar is the world's main reserve currency, has the biggest share in international trade. Commodity prices in the financial markets are quoted mostly in dollars.
July 6, 1785, is considered to be the birthday of the dollar, that`s when the US Continental Congress adopted the dollar as a monetary unit of the United States. There are a number of countries that have chosen the US dollar as their own currency, among them are Marshall Islands, Ecuador etc. Some countries peg their currencies to the dollar.
Did you know that?
The dollar is also commonly referred to bucks. No one knows the origin of this nickname. One of the versions is that the "buck" is derived from the "buckskin" - the skin of a deer, which the American Indians used as a currency in those days.
Another nickname for the US dollar is "greenback". During the American Civil War, the United States printed 450 million dollars, one side of which was coloured with grey ink while the reverse with green. So people called them "greenbacks".
These nicknames came to us from the past but they are still one of the most common terms used to describe the US dollar.
Euro – EUR
Euro is the single currency of the European Union and is the second most traded currency in the world after the US dollar. It is also a primary or secondary reserve currency.
The currency sign used for Euro is €, the international currency code is EUR. Euro was introduced in 1999, and the first banknotes and coins appeared later, in 2002, replacing such major global currencies as French franc, German mark, Italian lira.
Behind the Euro stands the ECB – the European Central Bank. This is a common central bank for all Eurozone states. It defines monetary policy, issues money etc. The head office of the European Central Bank is located in Frankfurt am Main (Germany).
The Euro is traded in all trading sessions, but the biggest trading volumes are observed during the European and American sessions. As the Euro is a national currency in many European countries, it is necessary to follow the political events and macroeconomic statistics within the Eurozone when trading currency pairs with Euro. When trading the EUR/USD currency pair, it is necessary to monitor political events and economic reports from the United States.
Did you know that?
The EUR/USD currency pair is nicknamed "fiber". There are two variants why is it called so. Some say that this term was derived from the Transatlantic fiber-optic cable through which data was transmitted, while others believe that EUR/USD was named "fiber" as euro banknotes were printed on cotton fiber.
The Japanese Yen – JPY
The next most traded currency is the Japanese yen – the monetary unit of Japan. It ranks the third place in the list of the most traded currencies, with 21.6% of daily turnover. The yen is symbolized by ¥ and controlled by the Bank of Japan (BoJ).
The history of Yen goes back to 1871 when it was officially adopted by the Meiji government. The yen is a stable currency and is referred to "safe haven" currencies. It is in high demand on Forex and has high liquidity.
Yen is traded along with the US dollar, pound, and euro. Currency pairs with Yen are actively traded during the Asian session, but Yen can also be active in other sessions depending on what economic data is released. The yen's rate depends on the country's macroeconomic indicators.
Did you know that?
"Trading the Ninja" means trading the USD/JPY currency pair. Maybe, this currency pair got such nickname as Ninja came from Japan. The USD/JPY pair is nicknamed Yen as well.
The British Pound – GBP
The British pound is the national currency of Great Britain. It is also known as pound sterling. The letter code of pound is GBP, which is the acronym of Great Britain Pound, the currency sign is £. The British pound is the fourth-most traded currency with a share of almost 13% in daily trades. It is controlled by the Bank of England (BOE).
The most common currencies that trade in terms of the pound are the US dollar (GBP/USD), the euro (EUR/GBP), the Swiss franc (GBP/CHF). The GBP/JPY currency pair has the highest volatility and shows strong movements, price fluctuations may reach 120 or even 150 pips. So, take into account its volatility, if you decide to trade these pair. The main trading activity falls on the European and American sessions.
Did you know that?
The GBP/JPY currency pair is known as Cable. In the middle of the 19th century, the transactions were transferred to America through the transatlantic cable.
Australian dollar – AUD
The Australian dollar is the currency of the Commonwealth of Australia. It takes the 5th place among the currencies traded on Forex, accounting for 6.9% of the turnover. The Australian dollar is traded with the currency code AUD and is denoted by the $ symbol. AUD is controlled by the Reserve Bank of Australia.
The Australian dollar is considered to be the commodity currency. The economy of Australia is very dependent on the export of natural resources. Therefore, weather conditions can affect the Aussie. Australia is rich in gold deposits, so the Australian dollar is highly correlated with gold prices. The Aussie's rate directly depends on the world prices of gold. I also recommend you to follow the economic reports from China. Australia and China are important strategic partners.
The interest rate of the Reserve Bank of Australia is higher than that of other world central banks. Therefore, the Aussie is often used in carrying trades, for example, with the Japanese Yen which interest rates are much lower.
Did you know that?
To distinguish the Australian dollar from other dollars, it is commonly referred to the Aussie or Ozzie just like people from Australia. Ozzie is just the variation, as there is the difference in the pronunciation between UK and US English. This term is also used for the AUD/USD currency pair.
These currencies top the list of the most traded currencies and make the top 5.