In basic forex nomenclature, the different currency pairs of the world are divided into groups by the amount of daily trading activity and liquidity in each of them.
The market refers to these groups specifically as the major, minor and exotic currencies. Below are listed the different currencies that make up each group. You can also see the currencies grouped into reserve, commodity, exporter and high risk currencies here.
The major currencies are the:
- USD – U.S. Dollar
- EUR- European Union Euro
- JPY- Japanese Yen
- GBP – U.K. Pound Sterling
- CHF – Swiss Franc
The U.S. Dollar
The Dollar or Greenback figures prominently as the world’s leading reserve currency for many years and also as the world’s second largest economy by Gross Domestic Product or GDP.
U.S. Dollars are involved in 86% of daily forex turnover. The U.S. Dollar also makes up the base currency for two of the major currency pairs when quoted against the Japanese Yen and the Swiss Franc.
The Euro is the world’s number two reserve currency and consists of the consolidated currencies of 16 out of the 27 European Nations which together make up the Eurozone. The European Union is the largest economy in the world by GDP.
Recently under considerable pressure because of sovereign debt issues of some of its smaller member states, the Euro continues being of extreme importance to the world economy and trading in the Euro currently makes up approximately 37% of total forex volume.
Also, the Euro is supposed to be the base currency in every currency pair it is traded in.
The Japanese Yen
The currency of the world’s third largest economy by GDP has the second largest trading volume with 17% of total forex volume.
Tokyo is also a major forex dealing center which tends to increase trading volume.
The Pound Sterling
The currency of the United Kingdom, the world’s sixth largest economy by GDP, makes up 15% of total forex trading volume.
The Pound has the advantage of London being a major financial and forex trading center that tends to increase trading volume in its local currency.
The Swiss Franc
While not a leader as far as GDP or commercial importance is concerned, the Swiss Franc still sees almost 7% of total forex trading volume.
The Swiss Franc acts as a reserve currency of a neutral state, and hence has important for international commerce and banking.
The Swiss currency is also generally considered a safe haven currency in troubled times, although it is no longer convertible into gold.
The Commodity Currencies or Com Dollars are minor currencies that belong to countries which have a variety of natural resources which give their currencies intrinsic value.
As a result, the values of these currencies are linked to the value of the commodities their economies produce, such as oil or gold, for example.
They are the:
- AUD – Australian Dollar
- CAD – Canadian Dollar
- NZD – New Zealand dollar
The Australian Dollar
The Aussie is the sixth most traded currency on the forex market and accounts for over 6.5% of forex volume. Australia ranks thirteenth in the world in terms of economy size as measured by GDP.
The Canadian Dollar
The Loonie accounts for 4.2% of total forex volume and is the tenth largest economy by GDP.
The New Zealand Dollar
While the Kiwi is the currency of the 52nd largest economy in the world, it still accounts for almost two percent of total forex daily volume, largely due to its popularity with speculators.
In addition to the commodity currencies, the Minors also include the Scandinavian Currencies. These consist of the:
- DKK – Danish Kroner
- NOK – Norwegian Kroner
- SEK – Swedish Krona
Some of the more active Exotic currencies include the:
- HKD – Hong Kong Dollar
- MXN – Mexican Peso
- SGD – Singapore Dollar
- KRW – South Korean Won
- ZAR – South African Rand
- RUB – Russian Federation Ruble
- INR – Indian Rupee
The group of Exotic Currencies consists of just about all the currencies not included in the Majors and the Minors.
The fact that these currencies are deemed exotic is because of the lack of liquidity in their foreign exchange markets, not because of the country’s location or size.