As Japan's economy goes, so goes the yen in some respects. Professional Clients Experienced traders who meet the criteria can qualify for Professional Client status.
China, for instance, has long had its currency, the yuan or renminbi, pegged to the dollar, much to the disagreement of many economists and central bankers. Quite often countries will fix their exchange rates to the USD to stabilize their exchange rate, rather than allowing the free forex markets to fluctuate its relative value.
One other feature of the USD that novices in forex need to understand is that the dollar is used as the standard currency for most commodities, such as crude oil and precious metals. That means these commodities are subject not only to fluctuations in value due to the basic economic principals of supply and demand but also to the relative value of the U. Although still relatively new to the world stage, the euro has become the second most traded currency, behind only the U. And the euro is the world's second-largest reserve currency.
The official currency of the majority of the nations within the eurozone, the euro was introduced to the world markets on January 1, , with banknotes and coinage entering circulation three years later. The euro is commonly traded by speculators as a play on the general health of the eurozone and its member nations.
Political events within the eurozone can often lead to large trading volumes for the euro, especially in relation to nations that saw their local interest rates fall dramatically at the time of the euro's inception, notably Italy, Greece, Spain and Portugal. The euro may be the most "politicized" currency actively traded in the forex market. The Japanese yen is easily the most traded currency out of Asia and viewed by many as a proxy for the underlying strength of Japan's manufacturing-export economy.
As Japan's economy goes, so goes the yen in some respects. Many use the yen to gauge the overall health of the Pan-Pacific region as well, taking economies such as South Korea, Singapore and Thailand into consideration, as those currencies are traded far less in the global forex markets. The yen is also well known in forex circles for its role in the carry trade seeking to profit from the difference in interest rates between two currencies.
Japan has basically had a zero interest rate policy for more than two decades, and traders have borrowed the yen at next to no cost and used it to invest in other higher yielding currencies around the world, pocketing the rate differentials in the process.
With the carry trade being such a large part of the yen's presence on the international stage, the constant borrowing of the Japanese currency has made appreciation a difficult task. Though the yen still trades with the same fundamentals as any other currency, its relationship to international interest rates, especially with the more heavily traded currencies such as the greenback and the euro, is a large determinant of the yen's value.
The Great British pound, also known as the pound sterling, is the fourth most traded currency in the forex market. It also acts as a large reserve currency due to its relative value compared to other global currencies. For this reason, the pound can be viewed as a pure play on the United Kingdom. Forex traders will often base its value on the overall strength of the British economy and political stability of its government.
Get in on the action of FX, the most traded market in the world, with a market leader. Sign up for a risk-free demo. Most Popular Forex Markets. We understand what traders need and offer sophisticated trading tools, competitive spreads and exceptional execution quality on over 80 currency pairs.
Typical Live Typical Live. Product Typical As Low As. Spreads will vary based on market conditions, including volatility, available liquidity, and other factors.