Far too many Forex traders make the mistake of not thinking about what they are trading beyond price fluctuations on a screen. While it is true in trading that price is king and also that prices are never too high to go higher or too low to go lower, you will trade better over time if you have some understanding of what makes the currencies you are trading unique. Understanding the major Forex global currencies will make you a better, a more focused, and more profitable trader.
Which are the Major Forex Global Currencies?
There are eight currencies that are most important in the Forex universe. They are as follows, more or less in the consensus order of importance:
USD (U.S. Dollar)
EUR (Euro)
JPY (Japanese Yen)
GBP (British Pound)
CAD (Canadian Dollar)
CHF (Swiss Franc)
AUD (Australian Dollar)
NZD (New Zealand Dollar)
Additionally, the Chinese Yuan (CNY) is becoming increasingly important, although it is not yet fully convertible. There is an “onshore” Yuan and an “offshore” Yuan, the latter of which is offered for trading by many Forex brokers.
The ranking shown above was not simply ordered by relative GDP or any other economic indicator. Instead, the layering of importance given to the various currencies takes into account convertibility, use as a global reserve, and correlation with important commodities. For example, there are several countries, such as India, which have much larger economies than Switzerland or Australia. However, Australia is an important producer of gold and several other commodities which are used in manufacturing, while Switzerland's banks hold a huge proportion of global private capital and especially gold, giving both of these currencies weights beyond the national economies which they represent. You must think beyond simple economics to succeed in understanding the major Forex global currencies.
Currencies are National debt
All modern currencies are paper backed by nothing more than the promise of the central bank of the nation to honor the obligation. Currencies are 100% debt.
