the The forex market is the largest industry In the financial market, where trillions of dollars are traded on any given day. It is much larger than the stock, commodity and bond markets.
The definition of forex trading is that it is the practice of buying and selling currencies with the aim of making a profit.
By and large, everyone is invested in Forex. For example, in 2022, the EUR/USD pair collapsed so badly that it moved below the parity level.
At its lowest point, the pair was about 13% below its highest point of the year. Therefore, the Europeans who were holding US dollars instead saw their Euro accounts perform much better.
In this article, we will focus on exotic currency pairs and evaluate what they are.
An exotic currency pair is one of the currency pairs Between two currencies that are trading weakly. For example, KES/TRY (Kenyan Shilling vs. Turkish Lira) or BRL/ZAR (Brazilian Real vs. South African Rand) can be considered as exotic currency pairs since not many people trade them on a given day.
Exotic currency pairs It mostly consists of two emerging market currencies. An emerging market is a country that has not yet reached the status of a developed country. They include countries like Turkey, South Africa, China, Brazil and others.
Sometimes, exotic currency pairs also consist of emerging and developed market currencies.
Below is a list of the most important exotic currency pairs
- Euro/Turkish Lira (Euro vs. Turkish Lira)
- Singapore dollar / South African rand (Singapore dollar to South African rand)
- Brazilian real / Turkish lira (Brazilian Real vs. Turkish Lira)
- SGD/MXN (Singapore Dollar vs Mexican Peso)
- CNH / RUB (Chinese Yuan in Russian Ruble)
- EUR/ZAR (euro vs rand)
- British pounds / ruble (British Pound vs Russian Ruble)
- EUR/MXN (Euro vs. Mexican Peso)
- MXN/ZAR (Mexican Peso vs. Rand)
Exotic currency pairs differ from the other two major types of currency pairs: Majors and minors. forex The main consists of two currencies of developed countries Such as the United States, Australia and New Zealand.
These pairs Highly liquid They are often much cheaper to trade due to their tight spreads. Examples of the most important major forex currencies are EUR/USD, GBP/USD, and USD/CHF.
The main feature of Major forex Is that them You must have US dollars Either as the base currency or quote currency. They are also highly liquid currencies, which makes them It has narrow spreads.
Moreover, these currency pairs have much larger volumes and are offered by all forex brokers.
The other main type of these currency pairs is the palace. minor currency pair It consists of two currencies that are moderately traded.
As a definition, these pairs consist of developed countries with the exception of the US dollar. Examples of the most common foreign currencies are EUR/GBP, AUD/NZD, AUD/GBP, EUR/JPY, and GBP/SEK.
Minor currency pairs have many characteristics, including higher trading volumes than exotic currencies and are offered by many brokers.
Exotic currency pairs have a number of characteristics, including:
- Poorly circulated Firstly, these currency pairs are poorly traded because most of the traders prefer highly liquid currencies.
- wider margins The spread is the difference between the ask and the bid for the pair. Exotic items have a wider range, which makes them more expensive to trade.
- Not offered by all brokers – Because of the small trading volumes, most brokers do not offer these currency pairs.
- low volumes These exotic currency pairs have very low trading volumes.
- Insufficient right on time News – Sometimes it’s hard to find the latest important news on these pairs.
There are quite a few advantages to trading exotic currency pairs in the forex market. For example, Some people specialize In them, they perfected their moves, and now make a lot of money on them.
Moreover, since they are traded weakly, these currency pairs She could have some hidden opportunities Which most traders don’t focus on. As such, it is possible for one to make unrelated returns.
Most Analysts and experts believe that exotic pairs are very risky For traders and investors. As such, they are just Recommended for highly experienced people With extensive experience in the industry.
These risks are mostly because of the characteristics that we mentioned in the previous section.
more expensive to trade
forex brokers They do not charge commission on trades executed in their platforms. Rather, they are Earn money through what is known as the spread between currency pairs.
Spread is defined as the difference between the bid and ask prices. The difference is usually huge Thinner for major currency pairs Such as EUR/USD and GBP/USD. On the other side, odd pairsbecause of its nature, It usually has very wide margins.
It is also more expensive if your account is in USD, EUR or GBP. To carry out the trade, the broker will first need to convert the account currency to the exotic pair.
Exotic currency pairs are usually very volatile compared to the majors. For example, the Turkish lira is more volatile due to the lack of independence of the Turkish Central Bank.
Likewise, currencies such as the Argentine and Brazilian pesos tend to fluctuate due to their high national debt.
While high volatility is preferred by traders, exotic currency pairs are riskier as they are also not highly liquid.
Rare coins High liquidity due to the small number of traders who specialize in it.
also , amount Normal trade between the two countries considerably small. It is this illiquid nature that leads to higher trading costs.
Exotic forex pairs They are traded in a similar way to forex majors. Traders use several strategies to achieve this:
- Fundamental analysis This is where they look at news that can move a currency pair. The most popular news on Central bank decisionsAnd electionsAnd Goods’ prices.
- Technical Analysis – This is a process consisting of three main parts: Use pointersSchedule patternsAnd Candlestick patterns. Indicators include tools such as moving averages, the relative strength index (RSI), and MACD.
- Chart patterns take longer to form They include patterns such as triangles, head and shoulders, rising and falling wedges, double tops and double bottoms.
- Candlestick patterns It consists of one or more candles and can predict a reversal or continuation.
questions and answers
What are the exotic currency pairs?
Exotic currency pairs are those consisting of developing countries or emerging markets. They trade weakly and tend to have wide spreads. Examples of popular exotic currency pairs are EUR/TRY, GBP/BRL, and SGD/EUR among others.
Is BRL an exotic currency?
Brazil is a major emerging market country. However, on a global level, the country is not a major player like the United States and the European Union. Therefore, the Brazilian real is an exotic currency.
What is an example of exotic pairs in forex?
Examples of popular exotic pairs in forex are EUR/TRY, GBP/TRY, EUR/SGD, EUR/ZAR, and GBP/BRL among others.
What is the difference between forex majors and exotics?
Major forex trading consists of the US dollar as the base or quote currency and a developed country currency such as the euro and the British pound
Useful external sources
- What are the pros and cons of exotic currency pairs? – Quora