Forex Currencies: Majors and Minors

Posted on Oct 10, 2014 in Blog

Over 180 currencies are currently in global use, though only a few of these are traded in significant volume and with any deal of frequency. In this article we will discuss both major and minor Forex currencies, as well as the ‘big four’ – the four most widely traded currencies in the FX markets.

Forex Major Currencies

The most widely traded currencies are known as the Forex majors and they are as follows;

US Dollar, Sterling, Euro, Yen, Swiss Franc, Canadian Dollar, Australian Dollar, NZ Dollar.

Of these, the ‘big four’ in terms of daily percentage of trades are USD (87%), Euro (33.4%). Yen (23%) and Sterling (11.8%.) As all currencies are traded in pairs, percentages are calculated out of 200%

Forex Minor Currencies

Other currencies are referred to as ‘minors’ – the most important and frequently traded minor currencies are;

Mexican Peso, Chinese Yuan, Russian Rouble, Hong Kong Dollar, Singapore Dollar

Base and Counter Currencies

Every currency pair has a base currency and a counter currency. The base currency is always the first currency in the pair and is the one that the counter currency is compared to. When it comes to Forex Majors there is an established order of precedence for base currencies, which is as follows;

Euro, Sterling, AUD, NZD, USD, CAD, Swiss Franc, Japanese Yen

This means that the Euro will always be the base currency when it is present in a pair, whilst Sterling will always be the base currency in the pair – unless the Euro is the other currency – and so on down the line. So, for example, if we look at three different Major currencies – Euro, Sterling and US Dollar – the following pairs we could form from these currencies would be as follows;

EUR/GBP

EUR/USD

GBP/USD

The Four Major Currencies

US Dollar

With the US being the world’s largest single economy, the country’s currency unsurprisingly has a global reach. USD is the world’s reserve currency, meaning that the majority of global foreign currency reserves are largely made up of the US Dollar. In terms of Forex, it’s the most traded currency in the world, present in all of the world’s most traded currency pairs. With many countries pegging their exchange rates to the Dollar, its position as the world’s foremost Forex currency is unchallenged.

Euro

Now in its fifteenth year, the Euro is the currency of many countries (though by no means all) within the EU, making up an economic bloc known as the Euro zone. Containing economic powerhouses such as France and Germany, the Euro zone as a whole has a larger GDP than the USA.

Sterling

Up until the mid-20th century Sterling was the world’s reserve currency. Despite being supplanted by the Dollar, Sterling remains an important global currency. London is still the global hub of Forex trading, with around 40% of Forex trades taking place in the UK’s capital.

Yen

Japan has one of the world’s largest economies and is a huge global exporter. Though China’s economy is far larger, Japan’s currency, though no longer what it was in the halcyon days of the 80’s, is still by far the most traded currency in Asia.

 

In the future we will talk more about other popular FX currencies, as well as up and coming currencies in the Forex markets. In the meantime, however, we wish you the best of luck with your trading.