In forex, most traders only trade in popular major pairs such as EUR/USD or GBP/USD. Nevertheless, exotic currency pairs are also special opportunities you aren’t aware of. In this article, you’ll discover all you would wish to know about the inversion of exotic currency pairs.

Exotic currency pairs, including major and minor pairs, are not ordinary. This guide will help you understand the importance of exotic currencies.

What Are Exotic Currency Pairs?

Financial analysts call exotic currency pairs where one of the majors (USD or EUR) matches an EM or smaller economy currency. Here are examples of exchange rates: USD/TRY (U.S. Dollar/Turkish Lira) or EUR/ZAR (Euro/South African Rand).

Exotic currency pairs can be highly directional and less liquid than the majors. Geopolitical situations in major markets influence the rate of change of exchange rates. For those people who like to track the events happening across the globe, these pairs offer a chance to make correct predictions and succeed in making a profit.

Major, minor, and exotic pairs: What’s the Difference?

As you begin trading with exotic currency pairs, let us understand the dissimilarity between major and minor currency pairs.

Major pairs: These comprise the most exchanged currencies and are composed of at least the USD. Some examples of major pairs include EUR/USD, GBP/USD, and USD/JPY. They entail high liquidity and lower fluctuations, which most traders consider the best.

Minor pairs: These do not necessarily involve the USD but other popularly traded currencies such as the Euro, British Pound, or Japanese Yen. Some examples include EUR/GBP, GBP/JPY, and EUR/AUD.

Exotic pairs: As mentioned before, these pair one major currency with the currency of an emergent country. Although major and minor pairs take up a large share of the forex market, exotic pairs have higher volatility.

What Are the 7 Major Exotic Currency Pairs?

Let us consider and discuss some of the most active exotic currency pairs. These pairs offer unique trading opportunities and challenges:

USD/TRY (US Dollar/Turkish Lira): The Turkish Lira has fluctuated greatly over the past few years because of political and economic problems. This makes USD/TRY a favorite high-volatility trading bookmaker. You can freely trade this pair on FXCess because it offers real-time market data and other tools to observe these price changes closely.

USD/MXN (US Dollar/Mexican Peso): Mexico’s locations and favorable trading ties to the US make this combination common. This currency pair can experience large price fluctuations because of economic indicators such as oil prices, making for opportunities to trade in CFDs.

GBP/ZAR (British Pound/South African Rand): South Africa’s Rand floats with commodity prices, particularly gold. The shifts in the two countries’ economic activities can benefit traders through leveraging  , such as FXCess.

EUR/TRY (Euro/Turkish Lira): Like USD/TRY, the Euro is emerging as a volatile trading partner with Turkey’s economy, as Europe is Turkey’s biggest trading partner.

USD/SGD (US Dollar/Singapore Dollar): Singapore has the most stable economy in ASEAN. However, the currency pair exhibits reasonable volatility and is less liquid than the standard currency pairs.

AUD/MXN (Australian Dollar/Mexican Peso): However, the presence of more triangles in the Australian chart and the dependence of Mexico on trade with the US make this pair an exotic one to observe.

USD/HKD (US Dollar/HKD): Hong Kong’s currency is linked to the USD. However, certain political and economic aspects make this pair more volatile, providing speculators with an opportunity to trade.

How to Trade Exotic Currency Pairs: A type of pairing that is increasingly popular today.

Engaging in exotic currency pairs trading is not for the faint-hearted. A rational economic environment that necessarily presupposes profound state knowledge of global demand and sometimes unpredictable price fluctuations is needed. Here are a few things to keep in mind:

1. スプレッド: Even when trading exotic currency pairs, the price difference between the bid and offer prices is usually wider, making the cost of trading relatively expensive.

2. Volatility: Exotic pairs are more volatile; their price can increase and decrease sharply in a short amount of time. However, one must learn to manage risk, especially when using the leverage of CFD trading.

3. Geopolitical Risks: Emerging economy currencies on the exotic pairs are affected by political and economic status within the emerging economy pair. As in the case of USD/TRY or USD/ZAR, it is important to monitor events and news.

4. Choose a Reliable Broker: The choice of broker used in trading exotic currency pairs influences traders. To illustrate this, FXCess, for instance, provides a variety of exotic currency pairs through MetaTrader 4, which allows access to these markets with relative ease.

 Pros and Cons Associated with Trading Exotic Currency Pairs

 Pros:

• Higher Volatility: Volatility can indeed benefit traders who are ready for it. Using an appropriate approach is one way to take advantage of large price fluctuations.
• Diversification: The exotic currency pairs give investors another avenue of investment apart from major and minor currency pairs.
• Opportunities in Emerging Markets: The two currencies mentioned relate to emerging economies. As the global markets expand, exotic currency pairs have certain opportunities.

 Cons:

• Wider Spreads: As previously pointed out, trading exotic currency pairs is costly because the spread is normally high.
• Higher Risk: Therefore, the higher the chances of reward, the higher the risk. Fluctuations in the value of exotic pairs translate to high risk if not controlled.
• Lower Liquidity: Major pairs are more liquid than exotic pairs, so getting into and out of positions may not exactly be at the price that you would like.

Conclusion

AVA currency pairs are full of opportunities, but at the same time, the risks are also on the highest side. Using platforms such as FXCess and tools like Metatrader 4, it is possible to trade on exotic pairs and utilize the features of these pairs. The key thing, though, is to ensure that you keep control of your risks.

FAQs

What are exotics in trading? 

Exotics are pairs of two currencies, where one currency is from a small country and the other from a developed country.

Is XAU USD a currency pair? 

XAU/USD is the ratio between the amount of gold (XAU) and the US dollar.

Are exotic pairs worth trading? 

The ‘trend’ for exotic pairs is generally bearish or lower. If people make the right decision, they can achieve profit jackpots.

What is the most liquid exotic pair? 

USD/SGD (United States Dollar/Singapore Dollar) is one of the most liquid exotic currency pairs.

Why is the Euro called fiber? 

The term ‘fiber’ is used to describe the Euro because of the fiber optics of new banking systems within Europe.

Disclaimer:
This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. FXCess is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication