The top 10 most traded currencies

Most traded currencies

The forex market is by far the largest financial market in the world – with more than $7.5 trillion worth of trades executed every day according to the Bank for International Settlements. There are 180 currencies in circulation today, but just ten of them make up over 90% of all trades. In this list we cover those ten currencies, breaking down why they are so popular and what potential traders need to know about their influences.

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1. US dollar (USD)

The US dollar is by far the most traded currency in the forex market, with a global daily average trading volume of about $6.6 trillion. In fact, USD takes such a large precedent in forex markets that all ‘major’ currency pairs in foreign exchange trading include the dollar. In total there are six major currency pairs comprised of the US dollar and one of six other currencies in this list. Together these major pairs constitute about 85% of all FX trades.

The US dollar rose to the number one spot during the country’s economic dominance following the second world war. At the time, the US GDP accounted for 50% of the global economic output. Because of this, other countries began to use dollars for international trade to avoid currency conversion fees. The dollar standard remains today, with most major commodity markets around the world priced in USD.

Today, USD makes up a majority of currency reserves held by central banks around the world. Currency reserves are stashes of foreign currencies central banks and other major financial institutions use for international trade and to back the value of their own currency. Foreign currency reserves include a mix of major currencies in addition to the dollar: such as the euro, pound and yen.

Some smaller countries have directly pegged the value of their currency to USD, instituting a fixed exchange rate between themselves and the US. Countries with USD currency pegs include Cuba, Belize, Panama, Qatar, Saudi Arabia, UAE and Hong Kong. In order to ensure a stable peg, these countries must keep large foreign currency reserves so they are always able to honour the set exchange rate.

Other countries have even taken on the US dollar as their own currency in a process known as dollarization. Along with US territories, seven countries recognize the US dollar as legal tender: Ecuador, El Salvador, the Marshall Islands, Micronesia, Palau, East Timor and Zimbabwe.

2. Euro (EUR)

The euro is the second most traded currency with a daily average trading volume of almost $2.3 trillion. As the official currency of the European Union, it’s used by 19 of its member states and managed by the European Central Bank (ECB).

By using the same currency, euro-member states are able to circumvent currency conversion risks when conducting trade. This is believed to encourage economic activity and increase economic growth among EU countries.

However, the use of a single currency by so many countries can be a double-edged sword. On one hand, being backed by so many different countries is thought to increase the euro’s stability. But this can backfire if any of those countries experience drastic economic downturns. When times get tough in one member state, other countries are forced to bail out the weakened economy of their neighbour or risk instability spreading throughout the eurozone.

All of these entangled countries provide tons of trading opportunities and ample liquidity when trading euro pairs in forex. The strongest influences on the euro’s value are economic events within the eurozone like ECB meeting announcements, GDP rates, employment data and national elections among the member countries.

Like the US dollar, the euro is the focus of several currency pegs, mostly by African nations who have strong trade relations to Europe. These African countries export commodities to Europe and import manufactured goods and hardware.

3. Japanese yen (JPY)

The Japanese yen is the third-most traded currency with a daily average trading volume of $1.2 trillion. Japan also holds the third-largest GDP rate in the world. The country’s old yet robust economy sometimes makes it a target for investors looking for a safe haven currency to park their holdings.

The yen is famous for its low rate of inflation caused by an aging population and low consumer demand. As a result, the Bank of Japan (BoJ) maintains extremely low interest rates – sometimes even negative – to combat inflation. The yen’s low interest rate makes it a popular borrowing currency for traders looking to profit from interest rate differentials, known as a carry trade strategy.

In addition to low interest rates, the Bank of Japan does intervene in the yen’s exchange rate by directly conducting its own foreign exchange trades to help stabilize the yen exchange rate. While not a full currency peg, this manipulation is called a ‘dirty float.’

Other factors on the yen’s value include BoJ meeting announcements, GDP data, unemployment figures and industrial production within the country. Japan is a major producer of motor vehicles, integrated circuits and photography equipment. It’s worth noting Japan also imports large amounts of crude oil from the Middle East. This means a rise in the price of crude or geopolitical instability in the region can negatively impact Japan’s economy.

The yen may also be used to gauge the economic health of the entire Pan-Pacific region. This includes countries like Singapore, South Korea and Thailand who all trade heavily with Japan but whose currencies are not traded as much in the forex market.

4. British pound sterling (GBP)

The pound sterling is the fourth most traded currency. Around $968 billion worth of pounds are exchanged every day on the forex market. It’s also one of the oldest currencies still in circulation, dating back to Anglo-Saxon times.

The British pound is issued by the Bank of England, which uses a variety of tools to maintain price stability and promote economic growth. London is one of the premiere financial centres of the world, so every large financial institution closely watches the health of the pound. It is also an important benchmark currency for many smaller countries once colonised by Britain, and it maintains status as a widely used reserve currency.

5. Chinese renminbi (CNH)

The Chinese renminbi, also known as the yuan, is the official currency of the People’s Republic of China and the fifth most traded currency with an average $526 billion in daily trading volume. China’s rapid economic growth has made the country, and the renminbi, a strong player in global financial markets.

In recent years the Chinese government has been working to internationalise the renminbi by promoting its use in global trade and investment. This includes the country’s push to incorporate the renminbi into the International Monetary Fund's Special Drawing Rights basket of currencies.

However, the value of the renminbi is still tightly controlled by the People's Bank of China through a managed float system. This means that the People’s Bank can intervene in the foreign exchange market to control the value of the renminbi, potentially disrupting forex trade. 

The recent economic slowdown in China and tensions with the US have created significant depreciation pressure in the yuan. However, the People’s Bank maintains a currency peg within 2% of the US dollar’s value – the target range of its managed float system.

6. Australian dollar (AUD)

The Australian dollar, also known as the Aussie, is the sixth most traded currency in the forex market and a premiere currency of the Asia-Pacific region. The currency has an average daily trading volume of roughly $479 billion.

The Australian dollar is managed by the Reserve Bank of Australia (RBA) and is influenced by typical economic factors like the country’s GDP, unemployment rates and monetary policy set by the Reserve Bank of Australia.

Australia is a major exporter of commodities, such as iron ore, coal and gold, which makes the Australian dollar closely linked to the movement of commodity prices. A rise in commodity prices will usually lead to an appreciation of the Australian dollar, while a fall in prices may cause AUD to depreciate.

7. Canadian dollar (CAD)

The Canadian dollar, or Loonie, is the sixth most traded currency, with roughly $467 billion worth of CAD traded every day. It is issued by the Bank of Canada (BoC) which uses a variety of monetary policy tools to maintain price stability and promote economic growth.

Like the Australian dollar, Canada’s currency is strongly influenced by the price of commodities. Canada has a wealth of natural resources including crude oil, gold and lumber. Changes in the price or demand of these commodities can create volatility in Canadian dollar pairs.

Most of Canada’s trade is with the United States. Over 75% of Canada’s exports and 50% of its imports are with its southern neighbour, meaning the Canadian dollar is especially touchy to economic conditions in the United States.

8. Swiss franc (CHF)

The Swiss franc is the seventh most traded currency and the official currency of Switzerland. The franc has a reputation for stability, making it a popular safe haven for currency traders and investors. It’s managed by the Swiss National Bank (SNB).

Switzerland’s tendency to remain neutral in geopolitical conflicts as well as its closed-door banking system contribute to its safe haven reputation. As a result, the value of the franc tends to rise during times of global economic instability as money is transferred into the country.

While not a member of the European Union, a large portion of Switzerland’s trade is with EU members. This means the country is still vulnerable to changes in the economic performance of the euro. In the past, Switzerland has pegged and unpegged the franc to the euro in an attempt to stabilise and promote international trade.

9. Hong Kong dollar (HKD)

The Hong Kong dollar is the ninth most traded currency and the official monetary instrument of Hong Kong, a special administrative region of China.

Hong Kong is a major financial services centre and a hub for international trading and logistics. These industries, along with tourism and manufacturing, are what draw forex traders to the Hong Kong dollar despite it not being a major reserve currency.

The Hong Kong dollar is issued by the Hong Kong Monetary Authority (HKMA) and three other authorized banks, including the People’s Bank of China. HKD is pegged to USD at a rate ranging from 7.75 to 7.85. The Hong Kong Monetary Authority holds a large amount of USD in reserve to maintain this rate.

The Hong Kong dollar has faced significant depreciation pressure in recent times due to the ongoing civil unrest in Hong Kong, economic slowdown in China and trade tensions between the US and China. The HKMA has intervened to defend the currency from a rapid depreciation, but it faces pressure to balance the support for the currency and the protection of the city's foreign exchange reserves.

10. New Zealand dollar (NZD)

The New Zealand dollar rounds off this list as the tenth-most traded currency. It’s managed by the Reserve Bank of New Zealand and is classified as a commodity currency like its Australian neighbour.

A majority of New Zealand’s trade is conducted with China and Australia. Its main exports are agricultural commodities like dairy and meat products, and its largest imports are crude oil, motor vehicles and other machinery. The value of NZD is closely tied to the performance of these sectors.

The Reserve Bank of New Zealand has a flexible inflation targeting policy, which means that the bank may adjust interest rates to target a specific inflation rate. This policy can affect the value of the New Zealand dollar, as changes in interest rates may influence the level of investment in the country.