What is EUR? Understanding the Euro

Top three reasons why EUR is one of the world’s most-traded currencies

1. Eurozone economic power and stability

The Eurozone includes economic powerhouses Germany, France, Italy and Spain. These large economies are ranked 3rd, 7th, 8th and 13th in the word respectively, and boast a combined GDP of $12.46 trillion – or 74.1% of the Eurozone’s total GDP of $16.82 trillion. They help to drive global trade and investments, importing huge amounts of goods from the neighbours and countries outside of the Eurozone.

The Eurozone as a whole is one of the largest economic blocs in the world (for comparison, the GDP of the USA is approximately $28.78 trillion, or 71% larger). When you consider this, you can begin to understand the importance of the Euro to global markets. The Euro is heavily traded in international business and finance, as it makes good economic sense to buy a currency that is heavily influential in global markets. As of last year, The USA was the EU’s largest export partner, representing 20.6% of the EU’s total goods exports, while the U.S. was the EU’s second-largest import partner, accounting for 13.7% of the EU’s total goods imports.

The relative political and economic stability of the Eurozone over the past 25 years has allowed the Euro to grow in value steadily. These factors add to EUR as an attractive prospect in forex trading.

2. High liquidity in forex markets

The Euro is the second-most traded currency globally, after the US Dollar (USD). The volume of trading on EUR (or ‘market liquidity’) makes it very attractive to forex traders. It’s easy to buy and sell, with willing trading partners never difficult to find. In fact, EUR/USD transactions are the most common of all on forex markets, accounting for 30.5% of all daily transactions. For comparison, USD is most-traded, and involved in 88.5% of all transactions, while JPY is third, at 16.7%.

3. Diversification from USD

USD is the world’s largest reserve currency, and by a very wide margin. However, central banks around the world hold major reserves of EUR, too, due to its economic power, stability, and the need to diversify away from USD, should market shocks occur. These reserves also make trade with the Eurozone far easier.