In Forex trading, there are Major, Minor and Exotic currency pairs. Trading each category comes with unique opportunities for traders. In order to become a professional, it’s important to understand currency pairs and their characteristics thoroughly.
Exotic pair definition
Exotics are currencies of developing countries. In an Exotic pair one or both currency is Exotic. And the other currency in an Exotic pair can be a Major currency such as US Dollar vs Turkish Lira, Euro vs Russian Ruble and so on.
Why is understanding Exotic pairs important for traders?
- Exotic pairs are the least liquid and offer the largest spreads, learning about Exotics can help traders avoid opening risky trades.
- There’s little information available on the internet on Exotic currencies and you need to be well prepared to trade them.
- Trading Exotics can be beneficial for traders that have a deep understanding of certain markets.
Thorough Exotic pair Explanation
As we’ve already mentioned, Exotic currencies are from developing countries and they’re exchanged less frequently with smaller volumes than Majors and Minors. Let’s dive deep to understand why most investors avoid investing in them and if you should do the same.
Developing economies are not stable. Usually these economies are dependent on very few sources of income. As a result, their value can change sharply at any given moment. Low liquidity also contributes to less limit orders and more volatile price changes. This makes the currencies riskier to invest. The risks are multiplied when you take into account higher spreads. In addition, you can hardly find a decent analysis on Exotic currency pairs on the internet since everyone’s focused on Major pairs.
Now let’s talk about some of the advantages of trading Exotic pairs. Thanks to the fact that developing economies have fewer sources of income, their currency valuations have a more cyclical nature. For instance, if a country is heavily dependent on tourism, the national currency will increase in value during the peak season. Which makes it more predictable. If you have a deep understanding of certain Exotic currencies, you can try trading them but for the majority of novice traders Exotics are too dangerous to invest in.
Example of Exotic pairs in Forex
Now let’s take a look at some of the Exotic currency pairs:
- EUR/RON – Euro vs Romanian Leu
- USD/PLN – US Dollar vs Polish Zloty
- EUR/RUB – Euro vs Russian Ruble
- USD/MXN – US Dollar vs Mexican Peso
- EUR/SEK – Euro vs Swedish Krona
- EUR/SGD – Euro vs Singapore Dollar
- AUD/NOK – Australian Dollar vs Norwegian Krone
- USD/TRY – US Dollar vs Turkish Lira
- EUR/ZAR – Euro vs South Africa Rand
- GBP/CZK – British Pound vs Czech Republic Koruna
- USD/ZAR – US Dollar vs South Africa Rand
- GBP/MXN – British Pound vs Mexican Peso
FAQs on Exotic pairs in Trading
What are Exotics in trading?
In Forex trading currencies of developing economies are referred to as Exotics. There’s less information available for forecasting the future price, developing economies are less stable and more risky to invest in, as a result not many Forex traders are trading Exotic pairs. Which in turn translates into less liquidity and higher spreads.
What are examples of some Exotic currencies in forex?
Exotic currency pairs consist of one or both parts of Exotic currencies.
Below you can see the examples of some of the Exotic currency pairs:
- EUR/RON – Euro vs Romanian Leu
- USD/PLN – US Dollar vs Polish Zloty
- EUR/RUB – Euro vs Russian Ruble
- USD/MXN – US Dollar vs Mexican Peso
- EUR/SEK – Euro vs Swedish Krona
- EUR/SGD – Euro vs Singapore Dollar
- AUD/NOK – Australian Dollar vs Norwegian Krone
- USD/TRY – US Dollar vs Turkish Lira
- EUR/ZAR – Euro vs South Africa Rand
- GBP/CZK – British Pound vs Czech Republic Koruna
- USD/ZAR – US Dollar vs South Africa Rand
- GBP/MXN – British Pound vs Mexican Peso