Currencies are traded for profit on the Forex Market, with traders speculating on the value of international currencies before exchanging one for another.
Opening each day in Australia and closing in New York, Forex operates across international time zones, trading currencies 24/7.
Read on for more on currency trading and the top five Forex traded currencies …
Banks, businesses and individuals each use Forex to trade currencies.
Traders speculate on fluctuations in international currency values to make a profit by trading currencies on the Forex market.
It’s been estimated that 95 per cent of Forex transactions are carried out as a form of profit speculation, while 5 per cent facilitate international
payments and currency conversions in daily commerce.*
Fluctuations in currency values allow traders to profit by trading one currency for another.
Although currency values tend to fluctuate slightly throughout any given day, international currency values can seriously depreciate or appreciate depending
on a region’s economic and political stability, allowing for significant profits or losses to be made when trading one currency for another.
Each Forex transaction involves the purchase of one currency and the simultaneous sale of another.
As such, Forex traders refer to currencies in pairs. A currency pair is made up of the two currencies exchanged
during any one given Forex transaction.
Some currency pairs are traded more often than others on the open Forex market. The seven most traded currency pairings are called major currency pairs,
while other less-common couplings (especially those which don’t feature the USD) are known as cross-currency pairs.
Experts advise new traders to begin trading using the major currency pairs.
1. USD
2. EUR
3. JPY
4. GBP
5. AUD
The seven most traded currency pairs on the Forex market – the major pairs – are thought to account for 75 to 80 per cent of Forex’s daily trading volume**,
meaning some currencies are traded much more frequently than others.
Each of the top 5 Forex traded currencies is a part of at least one of Forex’s seven major currency pairs.
The US Dollar
The US Dollar is the central currency against which all other currencies are traded. As a result, most Forex transactions involve trading the USD for another
currency.
The Euro
The EUR/USD is the most actively traded Forex currency pair, and by some estimates accounts for 28 per cent of daily Forex trading***.
The Japanese Yen
The JPY/USD is the second most actively traded Forex currency pair, and is thought to account for 13 per cent of daily Forex trading****. JPY/USD is
generally used as the regional currency proxy for China and other Asian countries.
The Great British Pound
The GBP is most commonly traded against the Euro and the US Dollar – the two most traded Forex currencies. The
GBP/USD currency pair is estimated to account for 12 per cent of Forex’s daily trading volume.
The Australian Dollar
The AUD is commonly traded against the USD to comprise one of Forex’s seven major currency pairs, explaining the AUD’s entry as the fifth most traded Forex
currency.
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****According to data from the most recent Bank for International Settlements (BIS) survey of current Forex market activity.
By Clint Starr, cashzilla.co.uk