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With trillions of dollars involved on a daily basis with currency trade understanding the industry and how it works is important to unlocking what it takes to be a success. You might hear a lot of forex currency trade relating to the value of the dollar, but have you ever considered what makes the dollar so important? Sure it’s fairly obvious that the United States is in many ways the financial leaders of the world, but that’s not a static placement and is likely to change in the coming years or decades. Let’s look at the different popular exchanges in currency trade and see why their roles are essential.
The Dollar
The dollar is a great start and a forex standard. It is easily the most traded currency on the planet and its use as a pairing to offshoot values in a three-way comparison is perhaps its biggest value. The dollar acts as the world’s unofficial currency reserve and is held by possibly every economy in the world; how this came to be is not sure, but that’s just how the dice fell. Through dollarization it is also often used as an official currency in countries that are not American; in partnership with a local currency of course. For this reason it may be considered the best currency to trade in the world, but if this were the case every forex trader would be a millionaire thanks to the dollar already.
The Euro
Currencies rise and fall all the time; this is what makes the world currency trade turn. When it comes to the Euro, although it is a relatively new currency, the crisis in Europe gets so much coverage is because there are a lot of people invested in the Euro. As the world’s second most traded currency and with the second largest reserve supply, the Euro has become a keystone to forex trade and it’s not working out so well for the currency. The Euro, being the most volatile currency in relation to political events, allows intuitive traders a greater advantage to play off than with more stable currencies.
The Yen
The Japanese yen is used in its entirety to gauge the health of the economy in the entire Pan-Pacific region and Asia. If the yen is doing well it reflects better how profitable it may be to invest in the region; many who don’t even live in the area are able to trade online the currency without actually physically being there. During the 1990s and 2000s, the yen offered itself as a carry trade world currency in that it had virtually zero interest which saw investors using it against other higher-yielding currencies dodging interest rates. Its geographical location and the initial interest rates saw the yen as a powerful worldwide currency.
There is no single explanation as to how to trade foreign currency, but once we come to terms with the big players in the currency trade market we can better understand the effective strategies and how they work so well. It’s best to get the foundations right before we consider the house upon which it is built.
