Trading of exotic currencies: all you need to know
Understanding currency pairs is among the key elements of Forex trading. Currency pairs come in a variety of duos, including majors, minors, and exotics.
As they may be relatively less liquid than others on the market, exotic currency pairs are different from majors. However, due to their distinctive price movements and trading strategies, some exotic currencies are worthwhile to trade.
Alternative or third-world currencies are other names for exotic pairs. As they bear the potential for bigger profits than other currencies, they can present exciting prospects in Forex trading, but there are also hazards involved in doing so.
This article will cover the most liquid exotic currency pairs that can be traded with internationally regulated Forex brokers, their features, and trading benefits.
What are exotic Forex pairs?
The third group of the most traded currency pairs on the Forex market is exotic ones. One of the eight major currencies and a currency from a developing or emerging economy are examples of these couplings. Exotic pairs like NOK/TRY and TRY/RUB are just two examples of popular duos among Forex traders.
You may have the possibility to diversify your trade by using exotic Forex pairings. Exotic currencies are more volatile than majors, which raises the trading risks but also enhances the possibility of discovering trading opportunities that don’t exist in the major FX pairs. Additionally, the currencies of emerging markets have higher interest rates, which can make carry trades even more appealing.
As we mentioned before, an exotic currency pair would be created by pairing an exotic currency, like the South African Rand (ZAR), Turkish Lira (TRY), or Swedish Króna (SEK), with a major currency, like the Euro (EUR) or US Dollar (USD). Or, in some rare cases, these pairs can be created from two exotic currencies.
Moreover, the majority of emerging market currencies share some common features: they are highly sensitive to changes in US interest rates and expectations, as well as overall risk appetite (e.g. in a risk-off environment, traders and investors will generally favor the safe haven currencies and move out of emerging market currencies).
List of the most liquid exotic currencies
It’s essential to monitor the publication of national economic statistics like GDP, interest rates, and CPI data while trading exotic pairs. Also, as we mentioned before, the performance of the currencies of emerging countries can also be impacted by geopolitical events. Some of the elements that can impact the price of the assets include export trade agreements, natural calamities, and the nation’s hopes for economic progress.
We list a number of the key variables that can affect the price of some of the most liquid exotic currency pairs below:
One of the most traded currencies on the foreign exchange market is the Turkish lira. Compared to many other exotic currency pairs, this one has been highly liquid since it began trading in 2008. However, since the monetary policy was designed to keep prices stable in the Eurozone market, volatility has lessened. So, according to market experts, the European session is the ideal time to trade the EUR/TRY.
One of the most popular exotic currency pairs on the foreign exchange market is the US dollar (USD) versus the South African Rand (ZAR). The performance of this pair is strongly influenced by the economic correlation between the two countries: as one of the African economic giants, South Africa significantly depends on foreign trade. As a result, the South African Rand is a currency of an emerging region that can be significantly impacted by changes in the world’s commodity markets. On the other hand, the dollar is one of the most reliable currencies and still the main reserve currency in the world. Due to interest rate differences, the USD/ZAR is a popular asset pair in carrying trading strategies.
Another liquid Forex pair is the Mexican Peso (MXN) against the US Dollar (USD). Due to Mexico’s close geographic, political, and economic ties to the US, Mexican currency is highly susceptible to changes in US policies. The US trading session is the most popular period for traders to deal with USD/MXN.
The exchange rate between the Czech koruna and the U.S. dollar (USD) affects this currency pair dynamic, so pay attention to the primary drivers of the U.S. economy and global oil prices while trading the pair. The Czech Republic’s economy is centered on the automotive industry, power, electronics, and brewing, and the majority of the country’s products are exported.
Hong Kong imports a large portion of its goods and raw materials, and its most developed industries are utilities, trade, and international tourism. even being excluded from it, the US dollar has a significant impact on the pair. If you’d like to trade EUR/HKD then consider the economic data from the European Union and Hong Kong, as well as the main economic indicators from the United States, such as GDP, inflation data, the discount rate, the unemployment rate, and so on.
Forex trading strategies of exotic currencies
There are numerous Forex trading strategies, but none are superior to the others. Depending on the market conditions, the currency you’re trading, your trading plan and style, and the timeframe, each approach has a unique window of opportunity.
It is always advisable to reevaluate your trading objectives and the methods you are employing as something that is currently working well may not work as well in the future. The Forex market is unique and the most widely traded financial market in the world since it is constantly changing.
Prior to venturing out into the unknown, try to look through as many various trading tactics as you can and spend your time concentrating on a particular currency until you are well-equipped.
There are many trading strategies that Forex traders have utilized in the exotics market, and they can be generally categorized based on how long they hold their positions. Examples of the most suitable trading styles for exotic currencies include:
Scalping trading of exotic currencies
As positions are only held for seconds or minutes, scalping trading is the most active type of trading. Since factors of Fundamental analysis cannot have a major impact on such a short time frame, the method is purely based on Technical analysis. Choosing a reputable Forex broker with a favorable commission policy and quick execution is crucial because it takes hundreds of little deals to generate a sizable return (some of the most suitable you can find at the end of this article).
Exotic currencies day trading
Day traders will employ Technical analysis similarly to scalpers unless a jarring geopolitical event emerges. Day traders often don’t keep positions overnight; instead, they trade positions throughout the day. Additionally, in order to profit from their transactions, which may occasionally result in losses, they often need quick execution and low commissions.
Swing trading of exotic FX pairs
The next logical step up in trading strategies is swing trading where positions are kept here for a few days to several weeks. Given that both might have an impact on pricing in this time range, the research may combine Technical, Fundamental, and even Forex Sentiment kinds of analysis. For traders who would like to trade the Forex market part-time, this can be a useful trading strategy because positions are seldom entered and exited.
Position trading of FX exotics
The trading strategy with the largest time horizon where positions may be retained for months or even years. Fundamental analysis is a major driving force behind Forex position trading, which is quite similar to traditional stock trading. Here, reliability and the likelihood that they won’t go out of business soon should be your top priorities when choosing a Forex broker.
Pros and cons of trading exotic Forex pairs
By volume, there is less trading of exotic pairs than there is of majors and crosses. However, because of the benefits they provide, many traders continue to favor them:
- Opportunity for higher returns
Exotic pairings, which provide significant returns, have extended but quite predictable trends that experienced traders are familiar with. Exotic currencies will more likely rise dramatically in comparison to stable but plateauing major currencies because of their expanding economies.
- Higher interest rates
Generally speaking, developing country interest rates are greater than those in industrialized countries. Carry traders find trading exotic pairs intriguing because of this gap.
- More price volatility
Exotic pairs have a tendency to be much more volatile than majors and minors. It may be both a good and bad thing, but if you’re trading with a reliable Forex broker, on an advanced trading platform with risk management tools, and paying enough attention to Fundamental and Technical analysis, then it’s definitely a positive thing for you.
On the top of reasons why yet some traders may still prefer trading major and minor pairs over exotics is their relatively lower liquidity as fewer market players are involved in active trading.
Safe Forex trading of exotic pairs with VPN services
When trading different assets on the Forex market (whether it’s currency pairs, gold, or oil), traders recognize the value of privacy and security and employ Top VPN services to guarantee this.
Thanks to VPN, trades can be protected from prying eyes by using military-grade data encryption techniques on the Internet and displaying a phony location.
Additionally, VPNs stop other websites from gathering information about you (such as your gender, age, etc.) and then sending it to websites that display advertisements. Your private information will also be safeguarded when utilizing public Wi-Fi thanks to the program. The truth is that when we use public Wi-Fi, we expose ourselves to risk. When our devices connect to a network in a park or café, they become a prime target for hackers who can literally learn everything about us, even our bank passwords and private messages.
Click the button below to get the best VPN deal for Forex trading:
Or, if you would like to have everything in one place, there is a list of regulated brokers accepting clients worldwide that offer their free built-in VPS services for Forex trading.
Top Forex brokers for trading exotic pairs
When choosing an exotic currency pair to trade in the Forex market, it’s common advice to stick with the currency you’re the most familiar with: to correctly predict price movements you’ll need to know a lot about its domestic political and economic happenings. But no worries, as economic events, and trends are frequently covered by news outlets and discussed on social media, making it easy to research them.
Use free trading demo accounts provided by reliable online brokers, which feature live market quotes and a variety of Forex trading indicators, to test your trading strategy with exchange pairings of your interest. You’ll be able to watch the currency pairings perform in real time and become comfortable with the trading tools and Forex terminology.
Forex brokers listed below fulfill the requirements of the global strictest financial authorities and have been serving their clients for decades. They offer the widest range of currency pairs as well as other financial instruments such as Cryptocurrencies, as well as some of the best trading conditions, including Forex bonuses of up 100% on first deposits (subject to geographical availability), Social trading, swap-free Islamic accounts, and helpful risk management tools.
Plus500 Forex CFDs trading
Plus500 has been in the industry for over a decade and thus provides CFDs for major, minor, and exotic pairs, commodities, equities, indices, and Crypto (availability subject to regulations), as well as a trading guide and all the tools required to make trading more effective and protected.
Plus500 clients can use a web terminal for PCs and laptops, as well as an Android and iOS mobile app with two types of accounts: real and demo. The second will provide an excellent opportunity for new brokers to practice, test their trading skills, and gain valuable knowledge in real-world market conditions while remaining completely risk-free.
Plus500 is a credible CFDs broker that is licensed by the UK Financial Conduct Authority, the Australian Securities and Investments Commission, the Cyprus Securities and Exchange Commission, and the Financial Markets Authority in New Zealand. It is also a South African-regulated financial services provider, with a Financial Sector Conduct Authority license.
OANDA exotic currencies trading
OANDA is a well-known broker for traders worldwide. Among the more than 100 financial instruments available for trading are currency pairs, cryptocurrencies, indices, commodities, bonds, and metals. The broker offers more than 35 exotic currencies for trading in pairs, including the Indonesian Rupiah (IDR), EGP Egyptian Pound (EGP ), or Iranian Rial (IRR).
OANDA is regarded as one of the most reliable Forex brokers. It holds operating licenses in several countries and is a member of the regulatory bodies IIROC, FCA, and ASIC.
Furthermore, the broker globally offers three account types: demo, standard, and advanced trader, making it appropriate for both novice and experienced traders. OANDA encourages traders to put their skills to the test by opening a demo account with an unlimited amount of virtual money and an indefinite duration of use.
Exness exotic currencies trading
Exness is an online broker that allows users to trade a variety of instruments: currency pairs, stocks, indices, metals, energies, popular Cryptocurrencies such as Bitcoin and Ether, and others. When it comes to exotic currencies in particular, there are more than 60 pairs coupled with major currencies or with each other (like NZD/PLN, DKK/ZAR, or SGD/HKD).
Market participants with varying requirements will be able to find a trading platform that meets their needs, such as MetaTrader 1, MetaTrader 4, MetaTrader 5, or MetaTrader WebTerminal. To keep up with the latest trends, the broker has also created a mobile app for iOS and Android. Furthermore, Exness is one of the few companies that provide the option of using a free VPS service on demand to increase connection speed and save money in the event of a power outage or other factors.
Traders can enter the market with standard retail, and professional trading accounts, as well as a demo for improving their skills and practicing their strategies without worrying about their own funds, but by using virtual ones. Deposits and withdrawals of funds can be made through bank transfers, cards like Visa and MasterСard, Bitcoin, Tether, Perfect Money, NETELLER, WebMoney, and Skrill.
Exness is registered in several jurisdictions and is licensed by FCA, CySEC, FSCA, FSC, FSA, and others, allowing it to serve clients worldwide.
eToro Forex trading
eToro is truly one of the most popular brokers in the world, especially in Europe. You can trade and invest in over 2,000 different assets with the finest conditions: minimal Forex and trading costs and low minimum deposits. Since 2017, new digital currencies such as Bitcoin, Ethereum, and others have been added to the mix. Popular currency pairs, equities, Cryptocurrencies, commodities, ETFs, and indices are all on display for you to choose from when making your trades. Russian Ruble, Polish Zloty, South African Rand, Singapore Dollar, and other currencies are on the broker’s exotics list.
At eToro, you may choose between two types of accounts: Retail and Professional Client. The first is protected against negative balance and comes with a CopyTrader feature, while the second is notable for its infinite leverage. Furthermore, newcomers can always use a demo account to test out different trading strategies.
Given that it has millions of clients worldwide, eToro is an extremely credible broker backed by licenses allowing it to operate in a variety of countries while adhering to FCA, ASIC, and CySEC rules.
NAGA Markets Forex trading
NAGA Markets is a top-rated broker that trades currency pairs (majors, minors, and exotics), equities, exchange-traded funds (ETFs), futures, commodities, and metals, among other asset classes. There are various trading platforms accessible, including MetaTrader 4 and 5, as well as NAGA Webtrader, the broker’s original platform with mobile versions.
NAGA is a Social trading network where clients of all skill levels can trade, share, and replicate assets across over 950 different trading instruments. Tight spreads, low costs, quick trade execution speeds, and a variety of configurable account funding methods distinguish the broker’s trading conditions.
The broker complies with many regulatory requirements around the world, including the FCA, CySEC, MiFID II, and MiFIR, to make investing services available to clients in various jurisdictions.
Forex trading of exotic currencies - FAQ