Forex trading is one of the most popular methods of trading in the world, with daily trading volumes touching US $4 trillion! Some of the reasons usually given for the high popularity of forex trading are the access it provides to 24 hour markets, the high leverage afforded and the high levels of liquidity on offer. When spread betting or CFD trading on the forex markets, however, it is important to understand the differences between the most traded currencies in the forex market.
US Dollar: Trading the US dollar is one of the most popular forms of forex trading, especially since the currency acts as the unofficial global reserve currency in the forex markets. It is held by nearly every central bank and institutional investment organisation in the world and is used by some countries as an official currency, instead of the local currency. In financial markets the dollar is also used as the standard currency for most commodities, such as crude oil and precious metals. These commodities are subject to fluctuations in value of and the dollar's value is constantly susceptible to changes in inflation and interest rates.
Euro: Relatively new to the forex trading markets, the Euro was adopted quickly by forex traders and has quickly gone on to become the second most traded currency in the forex markets. The euro is also the world's second biggest reserve currency. Many African nations peg their currencies to the euro to stabilise the exchange rates. The euro is a trusted currency in the forex market and adds liquidity to any currency pair it trades with.
Japanese Yen: The Japanese yen is the most traded currency in Asia due to the perceived strength of the Japanese manufacturing sector. The yen is also particularly used for the purposes of carry trade because of the zero interest rate policy of the Japanese government for much for the 1990s and the 2000s. Forex trading the yen allows a trader the ability to borrow the currency at less costs and invest in other high yield currencies. The returns (rate differences) are relatively low risk and are thus a safe investment.
British Pound: The British pound is the fourth most popular currency in the forex market. It also acts as a reserve currency in the forex markets. The British pound is highly liquid and is considered a safe investment.
Swiss Franc: The Swiss Franc is viewed by many as a neutral currency and a safe haven within the forex trading markets. The Swiss franc usually trades in a relatively tight range to reduce volatility and keeps interest rates in line.
These are the most traded currencies. Spread betting and CFD traders wishing to enter the forex markets are advised to carefully study the price patterns and behaviour of these currencies in order to forecast their future movements better.
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