Thursday, 13 February 2014

The Importance of US Dollars in Financial Trading

Whenever you start financial trading you’ll notice that everything’s priced up in US dollars. At the Academy of Financial Trading we recognise that this can be confusing to people who don’t know the culture of financial trading. So what is the importance of US dollars in financial trading?

First of all the US dollar is important in financial trading because it is the unit of currency used in the United States of America. The US is the largest economy in the world and this alone means that the US dollar has immense value for everybody else.

This is because of the investing power the US holds. A good lesson to learn is that the larger the economy, the greater scope it has for ploughing that money back into businesses around the world. This means it makes sense that they are trading in the US dollar, because they’re business is largely fueled by investment from the US.

However it goes further than this .The US dollar is used as the standard unit of currency in international markets for all sorts of commodities and products.

This means that if you are investing in the Indian gold market, you’ll be doing it in terms of dollar worth. If you’re investing in the technology markets of Japan you’ll be doing it in dollar terms. Whatever company in whatever area of the world you’re trading in, it’ll be in dollars.

This practice is so common place that a whole host of non US based companies even list their share prices in US dollars. Airbus is one notable example where this happens.

Furthermore the US dollar is one of the world’s most popular reserve currencies. A reserve currency is a currency that a country hold in large amounts (that is not their own) that is used in international transactions between nations.

So when a nation makes a trade deal, for example, with another nation, it’ll do it in a popular reserve currency such as the dollar. This is because both nations find value in a reserve currency; whereas there might be problems if the nations used their own currencies in terms of value and exchange rates. The fact that many nations recognise the dollar as a reserve currency speaks highly about its value.

In conclusion a currency only holds so much value as people are willing to give it. The US dollar is generally held to be one of the most valuable currencies in the world; this is why the US dollar is so important in financial trading. 

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