When referring to currencies, the terms ‘majors, minors, and exotics’ are often preferred. They are divided into these groups depending on how much they’re used daily. The categories consider regular trading activity and liquidity of each currency.
The U.S. Dollar
The U.S. dollar has been the world’s leading reserve currency for several years. The U.S. is the largest economy in terms of nominal gross domestic product (GDP) in the world. Dollars make up 86% of everyday forex volume. In addition, the dollar makes up the foundation of the major currency pairs when priced against the Swiss franc and Japanese yen.
The euro is the second leading reserve currency behind the U.S. dollar, while the European Union members states ranked together would make up the 2nd largest economy in the world by GDP. The euro is used by 19 of the 28 EU members (these make up the eurozone). The euro accounts for about 37% of total forex turnover.
The Japanese Yen
Japan is the third largest national economy by GDP in the word (discounting the total EU). The yen makes up 17% of total forex turnover.
The Pound Sterling
The pound sterling is the currency of the United Kingdom, which has the fifth largest economy by GDP. The pound makes up 15% of all forex trading volume.
The Swiss Franc
The Swiss franc makes up 7% of total forex turnover even though Switzerland is not an economic leader in terms of GDP. However, since the franc is the reserve currency of a neutral state, it is significant for international banking and commerce. In addition, the Swiss franc is also considered a “safe” currency in turbulent times.
Minor currencies are made up of two types; commodity currencies and Scandinavian currencies. Commodity currencies belong to countries that have natural resources which add value to their currency. Therefore, the value of those currencies are intrinsically linked to the value of their commodities. It is important to note that there are other commodity currencies that do not count as minor currencies because they do not have significant forex volume.
The Australian Dollar
The Australian dollar makes up 6.5% of the world’s daily forex volume and is the sixths most traded currency on the market. Australia has the fourteenth largest economy in terms of GDP. The commodity tied to the value of the currency is the production of iron ore.
The Canadian Dollar
The loonie makes up 4.2% of total forex turnover. Canada has the tenth largest economy by GDP. The commodity tied to the Canadian dollar is oil.
The New Zealand Dollar
The kiwi accounts for about 2% of the total forex turnover even though New Zealand only has the 53rd largest economy in the world. This is mostly because of its tourist popularity. The New Zealand dollar is tied to soft commodities like agriculture.
Exotic currencies are made up of pretty much all other currencies not included in the majors and minors categories. Exotic currencies are in this category because of their low forex turnover. Some examples of exotic currencies (that remain fairly important) are the Hong Kong dollar (HKD), South African rand (ZAR), and the Indian rupee (INR).
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