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The market consists of a number of currencies being traded on a daily basis. For a new trader to understand the complexities within this market, it is first important to understand which currencies are being traded most regularly and why. iForex gives a detailed account of why these currencies are popular.
The US Dollar (USD)
Now, as we know, the US is the world’s largest economy, it is assumed that it is safer to trade with this currency. The dollar matches and pairs itself with many currencies, hence doing the role of a common link between any two transacting countries. This is due to the fact that the USD is considered as the global reserve currency and is accepted by every bank and financial institution in the world.
A lot of countries also choose to accept the USD as their official currency in the place of their own local currency.
The USD also acts as a benchmark for some countries in the foreign exchange market. So instead of relying on the irregularities in the market, they choose to target their rate at par with the USD. So as a result, the fluctuations in the value of their currency depend on the value of the dollar.
Another major reason for this is that the US dollar controls most of the supply and demand when it comes to crude oil and other metals.
The inception of the Euro in 1999 makes it a relatively new currency to deal with. However, it has since then become a widely used and trusted currency. The reason for Europe and Africa to trade in EURO has the same benefits as the USD has to the rest of the world. It was mainly introduced to offset any major challenges within the Eurozone, when it came to trading between its member nations. It is extremely popular in the Forex market and helps in achieving liquidity when paired against other currencies. Speculators enjoy the risk of trading in the EURO as the rate largely depends on the political pictures that occur inside the Eurozone, which is why it is called the most politically driven currency in the Forex market.
The Japanese Yen
To understand the importance of the Japanese Yen, it is important to mull over the concept of Carry Trade. The Yen has been usually traded with a zero interest rate, which makes it favorable for traders to invest in this currency and only to invest in those currencies with a higher interest rate. This makes the Japanese Yen a very popular currency. What is interesting to note is that many traders use the fluctuations in the Yen to get an idea of what is happening in the Asian region with countries like Singapore, Thailand, etc., not having as much importance in trading currencies.
The Great British Pound
Although the Great British Pound is part of the Euro Zone, it does not trade in the currency EURO, as its own currency has a much higher value as compared to its equals, which makes it a very major trading currency. Traders often relate its value to the status that British economy undergoes. One major benefit of trading with the Pound is its high value, which also serves as a standard for many countries. It is also a relatively liquid currency to trade in the market.
The Swiss Franc
The Swiss Franc is a relatively neutral currency. A major advantage of this currency is that, it moves in a negative association to currencies which are defined by the fluctuations in their commodities, such as the Canadian and Australian Dollar. The main principle of the Swiss Franc in the Forex market is to keep a tight check on the interest rates and to reduce the dispersion of returns between securities.
The Canadian Dollar (Loonie)
The Canadian Dollar largely depends on its exchange of commodity services, which makes it a risky currency to trade in. Its commodity markets consist of crude oil, metals which in turn define the exchange rate. Trading in this currency would give you an idea of the movement of these commodities. Its close proximity to the United States also makes it dependent on the USD.
It is important to understand where each currency stands in the market and how fluctuations in the value of one currency affect the value of another. Before trading on the market, it is necessary to have an in-depth knowledge of each currency, where iForex gives you a holistic view of the importance of each.
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