The forex market is an important are that many investors take interest in, but the amount of choices can be overwhelming. Fortunately, most of the change and activity occurs in a select few currencies. We can quickly summarise all these currencies and their advantages and disadvantages below.
This is by far the most important currency in the forex market. All of the important major currency pairs all include the US dollar. It stands as the World’s Reserve Currency, as most of the world’s wealth is retained in this particular currency. This makes trading in it very easy and allows for a huge market. Its huge reserves, not being dependant on one country, also means the currency can stay relatively stable.
The euro takes the second place to the dollar in importance. It has risen in importance rapidly, despite only being introduced in January 1, 1999. This is because many rather wealthy countries in Europe use it as their common currency, and it allows for a great amount of liquidity for the forex market. Political events can have huge effects on its value, which investors can easily take advantage of if they pay attention.
British Pound Sterling
The currency of the world’s former largest empire still holds great sway over the world. It has a great amount of liquidity but is also highly dependent on the political stability of the UK. Brexit, for example, has caused great volatility in the pound. Its performance is closely tied with that of the Euro, it being another major European power.
Switzerland’s reputation as a financial safe haven is well justified, and the behaviour of its currency (the Franc) reflects this. Its currency remains stable even through economic uncertainty. The Swiss national bank makes sure of the reduced volatility of the currency and thus restricts where it can be traded.
As far as commodity currencies go, the Canadian dollar holds the top place. Trends in commodity markets, such as precious metals, crude oil, and minerals all have a significant impact on the currency’s value. This makes the Canadian dollar a reliable indicator on how commodities are faring on the world market. As the USA is Canada’s closest (and only) neighbour, the trend in the currency reflects US economic trends.
The Japanese Yen remains the most important currency in the Asian market, and greatly reflects economic trends in the region. This includes Japan, South Korea, China, and Singapore. Japanese interest rate has remained at virtually zero for decades, making it a very stable currency to trade with.