Foreign exchange trading allows investors to choose the best type of currency to trade based on the characteristics of each currency.
This means that they can get twice as much profit with half the effort.
The foreign exchange market is comprised of five main types.
1. Commodity Currency
Commodity currencies reflect primarily the export tendencies and resources of the countries to which they are attached. Common commodity currencies include the Australian dollar and Canadian dollars. High-interest rates and high exports are the main characteristics of commodity currencies. The exchange rate of some commodity currencies changes in the same direction that the price of a commodity or gold.
2. Speculative Currency
Both the pound (and the yen) are part of the speculative currency. The currency that is most widely used around the globe is the pound. It is the world’s most valuable currency. Due to its high exchange rate with the US dollar, daily fluctuations are large. Its trading volume is much lower than that of the euro, which means it has strong volatility.
3. European Currency
The European currency includes currencies that are issued by countries located geographically in Europe. The largest percentage of the US dollar index’s weight is 57.6%. The euro can therefore be considered an opponent to the US dollar. The strength of the US dollar can be judged by investors using the euro. The stability of the euro currency is due to its large percentage and a large volume of transactions.
4. Asian sub-Currency
The Japanese yen is the main representative of Asian sub-currency. The appreciation pressure on the RMB is frequently increased to accommodate the approval of the yen when there is a risk of global economic imbalance.
It has a close relationship with the US economy. The main difference between the US currency group and the commodity currency is whether these countries are closely linked to the US economy. This is reflected in their exchange rate.
The Canadian dollar’s trend against major currencies is in line with that of the US dollar. Therefore, the Canadian dollar is an especially typical currency of the dollar group.