Top 10 World Currencies to Trade in Forex
The forex market is the world’s biggest financial market overseeing more than $7.5 trillion in daily turnover. This huge transaction volume originates from 180 world currencies circulating in 197 countries.
However, the majority of that volume is driven by just a few currencies that dominate the forex trading market. Among the world’s top ten currencies, at least seven of them are a part of the iconic major currency pairs that you find in every brokerage platform.
These currencies are also from some of the world’s largest economies, which contributes to their high status in the forex markets.
Classifications of World Currencies
A currency is described as the standardized monetary system of a country presented in any form. It can be in paper form, coins, or digital. The value of a country’s currency is determined by the number of gold reserves the central bank holds.
However, after the launch of the Bretton-Woods System in 1944, this principle significantly lost its meaning with currency valuation driven by the strength of the economy of the country.
In the forex market, there are three notable currency classifications:
- Commodity-backed currencies
- Currencies pegged to the US dollar
- Safe Haven Currencies
The safe-haven currencies are the USD, JPY, and CHF, whereas, the commodity-backed currencies are those that tend to move in tandem with commodity prices. They include AUD, NZD, CAD, RUB, and Saudi Riyal.
On the other hand, some countries have chosen to peg their currencies against the US dollar. Currency pegging occurs when the government of a given country decides to pin the value of its currency against another.
These currencies circulate at a fixed exchange rate to the currency they are pegged to. Good examples here are the Singaporean dollar (SGD), the United Arab Emirates Dirham (AED), and Bahraini Dinar (BHD), among others.
What to Consider When Choosing the Currency to Trade in Forex
To succeed in forex, you need to have a strategy that fits your experience, expertise, and risk appetite. Choosing your preferred currencies to trade is one of the most important steps in crafting your strategy.
Ideally, if you are just getting started, most investment advisors will recommend the safest currencies to trade. They will also advise you on the best option for your account currency. Your account currency is the currency denomination for your capital and profits. Some advisors often advise new traders to choose a safe-haven currency as their account currency.
Another factor to consider when choosing currencies to trade is your general knowledge of the market. For instance, if you closely follow the UK economy, then you might find the pound sterling more interesting to you.
On the other hand, if you are more glued to the commodities market, then the Aussie (AUD), the kiwi (NZD), or the loonie (CAD) may be more exciting to you.
Although it is recommended to do research on both currencies before trading, having enough knowledge about one of the pairs can also contribute to smart trading.
In this article, we discuss the world’s top ten currencies based on average transaction volumes. We will also highlight a few factors to consider when trading each currency that makes the list.
World’s Top 10 Currencies:
1. US Dollar – USD
As we all know, the world’s most powerful currency is the dollar. As the official currency of the United States, the US dollar is the cherry on top.
Around the world, USD is one of the most famous currencies. Aside from being a reserve currency, it is the most traded currency in the world. Most currency reserves contain USD as a major component.
This is also why the USD is the most traded currency in the world. Most global corporations and financial institutions prefer to use the USD for international trade because of its liquidity and stability relative to other currencies.
If you are going to choose the US dollar as your account currency, or one of your preferred trading currencies, then you need to keep tabs on regular market events like the non-farm payrolls, often called the US jobs data, Fed interest rate cuts and hikes, as well as, the US business relationship with the likes of China and Europe.
2. Euro – EUR
The euro is the next currency on our list. The euro is the primary currency of the European Union. It was adopted in 1999, so it is relatively new compared to most currencies of the world.
With the EU made up of 28 member states as of 2022, the euro is one of the most traded currencies in the world. It is also one of the world’s most liquid currencies, which makes it a good reserve currency. Because the USD and the EUR are the top two most popular currencies, trading the EUR/USD is often deemed the safest way to begin a forex trading career.
Both currencies are highly liquid, making them less susceptible to huge sporadic movements. Like the USD, the EUR is highly dependent on the regular interest rate updates issued by the European Central Bank (ECB).
Other factors that traders may need to pay attention to include Germany’s economic data and monetary policy updates relating to easing the stimulus packages, as well as, energy prices and geopolitics, like the current situation in Ukraine.
Tourism and trade in the Eurozone have increased since the euro was introduced. Although the currency is struggling currently due to events shaking Europe, traders are still able to take advantage of it.
3. Japanese Yen – JPY
Japan is one of the world’s largest economies. The Bank of Japan (BoJ) makes regular updates with notable data from the manufacturing sector, a key economic indicator. Unlike other safe-haven currencies, the government of Japan chose to devalue the yen in a bid to stimulate the economy.
Even as the global economies continue to raise interest rates, the BoJ has kept the base interest rate of the country unchanged citing high inflation rates.
Again, like the USD and the EUR, the JPY is one of the world’s seven most powerful currencies. It is also one of the reserve currencies, a factor that makes it one of the most traded currencies worldwide.
The Japanese are proud of their technological base as one of the top importers and exporters in the world, adopting cutting-edge innovations.
4. Swiss Franc – CHF
A top 10 currency list would not be complete without the Swiss franc. It is the official currency in Switzerland and Liechtenstein.
The tourism and banking sectors dominate Switzerland’s economy, which makes it one of the wealthiest countries in the world. A large percentage of offshore funds are held in the country. Investing in the Swiss franc is considered a haven due to its stability and low inflation.
Again, it is important to keep tabs on the regular updates issued by the Swiss National Bank. In January 2015, the SNB unpegged its currency from the EUR leading to a massive crash in the EUR/CHF currency pair.
5. Great British Pound – GBP
The Great British Pound (also known as the pound sterling or simply Cable) is the official currency of the United Kingdom, one of the world’s economic centers. The British pound is one of the oldest world currencies and one of the most traded.
Despite Brexit’s uncertainty, the UK economy remains strong enough to capitalize on market opportunities.
Although the pound sterling is one of the best currencies to trade in forex, sometimes it can be unpredictably volatile. This creates a huge opportunity for making profits. If you are an expert, then perhaps you may not need much help taking advantage of the volatility.
However, for those of you who are less experienced but still want to capitalize on the pound sterling’s volatile trading patterns, you can always find signal service providers like Telegram.Forex for assistance.
6. Chinese Yuan – CNY
The People’s Republic of China’s official currency is the Chinese yuan. If you are learning more about CNY, you might have heard about the renminbi. (A good thing to know is that the name of the currency is the renminbi.) In exchange, the yuan is the currency’s basic unit and CNY remains the official currency code for Chinese currency.
China is the world’s second-largest economy by GDP. Additionally, it has become the biggest exporter and producer due to its fast growth. As a result of effective economic reforms, China is climbing up to first place in several ways, including having two of the largest stock exchanges in the world and the largest workforce.
The yuan is heavily affected by the change in Chinese exports and imports.
7. Australian Dollar — AUD
The Australian dollar (AUD) is one of the currencies backed by commodities. This means that whenever commodity prices rise, the AUD strengthens and vice versa. It is also important to note that the AUD is often affected by the performance of the Chinese economy. This is because China is one of Australia’s largest importers.
Whenever China’s trade relations with the rest of the world are not going smoothly, then you can expect the AUD to be affected.
Australia has also been a member of the G20 economies since the founding of the association in 1999. Its currency also makes up one of the major pairs in the forex markets. The Reserve Bank of Australia issues regular updates on the monetary and fiscal policies, sometimes impacting the performance of the AUD.
8. Canadian Dollar – CAD
The Canadian dollar (CAD) is one of the 10 most traded currencies in the world. It is also another commodity-backed currency, with oil prices in particular having a significant impact.
Although the CAD is not essentially seen as one of the three main currencies that can be used as a safe haven during times of uncertainty, the country’s stable geopolitical environment has seen it rise to the ranks in recent years.
The Bank of Canada is responsible for issuing economic and monetary policy updates, which can also affect the CAD.
9. Hong Kong Dollar — HKD
The Hong Kong dollar (HKD) is one of the most traded currencies that are not viewed as a reserve currency. It is also a good example of how currency pegging can boost a currency’s performance in the forex market.
The HKD is pegged to the USD at a rate of HK$7.80 to US$1. The currency has recently started to witness significant transaction volume rising close to $120 billion in daily turnover. This is partly because Hong Kong is seen as the financial hub of western investors seeking value in Asia.
With English and Chinese being the two official languages, Hong Kong is a mirror western economy in Asia. The Hong Kong stock exchange is also one of the top 10 global stock market exchanges in the world, again attracting global investment.
10. New Zealand Dollar — NZD
The New Zealand dollar (NZD) is highly impacted by the performance of the tourism sector. It is also one of the commodity-backed currencies with daily and agricultural products playing a role.
Other factors that forex traders can look forward to include regular updates from the Reserve Bank of New Zealand about GDP, unemployment rate, and inflation.
The NZD is also affected by New Zealand’s trading activity with growths or declines in imports and exports being key indicators.
Based on this article, it is clear the global forex market is dominated by a few currencies. Statistics indicate that seven currencies account for 83% of the global forex market turnover.
We also learned that while there are three main haven currencies, others like the EUR and the CAD are quickly rising the ranks. Safe haven currencies tend to perform well during times of uncertainty, driven by risk-off trading activity.
However, when global markets are deemed to be relatively stable economically, these currencies tend to weaken slightly because people feel safe keeping their money in high-interest-earning economies. To learn more about the fundamentals of the forex markets, you can try to become a member of Telegram.Forex where you will also be able to receive forex trading signals from professional traders.