Piggy has been encouraging individuals to start participating in foreign exchange trading. This is basically a global market where one currency is exchanged for another. While the number of currencies in regular use around the world comes close to the number of countries in existence, only a very small handful of these currencies make up the vast majority of forex trading volume (cUSD5.0 trillion/day). The most traded currency in the world is the USD, constituting c90% of the average daily turnover in foreign exchange trading. This is why the USD is considered the most liquid currency in the forex market. Overall, the eight most commonly traded currencies are;
- USD (US dollar) – The buck or green back is the main world currency and is used as the major reserve currency by most central banks. Most internationally traded commodities are priced in USD;
- EUR (Euro) – It is a relatively new currency that came into existence in 1999. It is managed by the European Central Bank (ECB) in Frankfurt;
- JPY (Japanese yen) –The yen has gained the status of a “safe-haven” currency over the years;
- GBP (Great Britain pound) – The sterling/quid tends to be pro-cyclical – doing well when the UK economy is growing and vice-versa;
- AUD (Australian dollar) – The aussie is a commodity currency (coal & oil). Exports are mainly into China so the currency is sensitive to the Chinese economy;
- CHF (Swiss franc) – The swisse, though a major currency has less liquidity because of the progressively diminishing market activity of the Swiss franc;
- CAD (Canadian dollar) – The loonie is a commodity currency (coal & oil). Exports mainly go to USA so the currency is sensitive to the US economy; and
- NZD (New Zealand dollar) – Also considered a commodity currency (agricultural).
These eight most commonly traded currencies form the seven major currency pairs; which are; (i) EUR/USD (ii) USD/JPY, (iii) GBP/USD, (iv) AUD/USD, (v) USD/CHF, (vi) USD/CAD and (vii) NZD/USD. This is a unique characteristic of the forex market. Unlike the stock markets, where there are countless possible securities to choose from, foreign exchange trading is much simpler in terms of selecting trades.
Overall, since only a few currencies form most of the activity in the forex market, it is usually recommended for new forex traders to concentrate initially just on the major currencies. Sticking to the majors allows traders to focus their efforts in an efficient manner rather than disperse their attention among a multitude of different securities. In a time marked by progressively increasing information overload, a limited set of trading options can definitely be seen as a significant advantage.
Piggy has recommended beginners who would like to venture into the world of Global Market Online Trading to complete the babypips course. The instructions are outlined here; https://piggybankadvisor.com/2019/05/30/an-fx-trading-course-for-beginners/
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