Exotic Currency Pairs: Examples, Risks, and Methods 2024
The forex marketplace is the largest industry in the financial market, with trillions of dollars being traded on any given day. It is significantly bigger than the stock, commodities, and bond markets.
Forex trading is the practice of buying and selling currencies with the aim of generating profit.
To a large extent, many people are forex investors. For example, in 2022, the EUR/USD pair crashed so hard that it moved below the parity level.
At its lowest level, the pair was about 13% below its highest point throughout the year. Therefore, Europeans who held US dollars instead saw their euro accounts perform significantly better.
In this informative article, we shall focus on exotic currency pairs and assess what they are.
What can be an currency that is exotic?
An exotic currency pair is one that is made between two thinly traded currencies. For example, the KES/TRY (Kenya shilling vs Turkish lira) or BRL/ZAR (Brazilian real vs South African rand) might be considered exotic currency pairs because hardly any people trade them on a given day.
Exotic currency pairs are mostly made up of two emerging market currencies. An emerging market is a country that has yet to attain developed country status. These include countries like Turkey, South Africa, China, and Brazil, among others.
At times, exotic currency pairs also involve a combination of developed and emerging market currencies.
Here are some of the top exotic currency pairs
- EUR/TRY (Euro vs Turkish lira)
- SGD/ZAR (Singapore dollar vs South African rand)
- BRL/TRY (Brazilian real vs Turkish lira)
- SGD/MXN (Singapore dollar vs Mexican peso)
- CNH/RUB (Chinese yuan vs Russian ruble)
- EUR/ZAR (Euro vs South African rand)
- GBP/RUB (British pound vs Russian ruble)
- EUR/MXN (Euro vs Mexican peso)
- MXN/ZAR (Mexican peso vs South African rand)
Exotic currencies vs majors &minors
Exotic currency pairs vary from the two main types of currency pairs: majors and minors. A forex major consists of two developed* countries, like the US, Australia, and New Zealand.
These pairs are highly liquid and are generally significantly cheaper to trade because of their thin spreads. Examples of top forex majors include EUR/USD, GBP/USD, and USD/CHF.
The main characteristic of a forex major is that they must have USD as either the base or quote currency. These currencies are highly liquid, which helps them have tighter spreads.
Additionally, these currency pairs have significantly higher volumes and are offered by all forex brokers.
The other main type of currency pairs is minors. A minor currency pair is made up of two moderately traded currencies. By definition, these pairs consist of developed countries excluding the US dollar. Examples of the most popular forex minors include EUR/GBP, AUD/NZD, AUD/GBP, EUR/JPY, and GBP/SEK.
Minor currency pairs have several characteristics, including higher trading volumes compared to exotic pairs, and they are available through many brokers.
Here are the characteristics of exotic currency pairs
Exotic currency pairs have quantity of characteristics, including:
Thinly traded
- Firstly, these currency pairs are thinly traded since most traders prefer highly-liquid ones, resulting in wider spreads.
- The spread is the difference between the ask and bid prices of a pair. Exotic pairs have wider spreads, making them more expensive to trade.
- Not all brokers provide these currency pairs due to their low trading volumes.
- Exotic currency pairs typically have very low trading volumes.
- Obtaining timely news can be challenging for these pairs, as it may be difficult to find the most up-to-date information.
There can be few features of trading exotic currency pairs into the market that is forex. For example,
Some people have specialized in exotic currency pairs, mastering their movements and now make a lot of money. Because these pairs are thinly traded, they can present hidden opportunities that many traders overlook.
Further. As a result, it will be possible so that you can
make returns which are uncorrelated
Most analysts and experts believe that exotic forex pairs are risky for traders and investors. They are typically recommended only for highly experienced individuals with vast industry knowledge. These risks stem from several factors
because of the characteristics
That we have mentioned in the section that is previousMore expensive to tradeForex brokers don’t charge commission for trades executed within their platforms. Instead, they
generate income through what is referred to as spread between currency pairs. Spread is understood to be the difference between the bid and ask prices. The spread is normally much thinner for major currency pairs including the EUR/USD and GBP/USD pair. That being said, exotic pairs, due to their nature,
usually have extremely wide spreads
It may be more costly when your account is in US dollars, euros, or British pounds. The broker will first have to convert the account currency to the exotic pair.
Highly to execute the trade volatile
Exotic currency pairs are often highly volatile compared to majors. The Turkish lira, for example, is more volatile due to the Turkish central bank’s lack of independence. Similarly, currencies like the Argentine peso and Brazilian real tend to be volatile because of their high national debt. While some traders prefer high volatility, exotic currency pairs are riskier due to their lower liquidity.
Illiquid exotic currencies are highly illiquid due to the small number of traders who specialize in them. Additionally, the trading volume between the two countries is generally quite low. It is this illiquid nature that leads to higher trading costs.
The volume of trade between the two countries is generally substantially small. It is this nature that leads to illiquidity and high costs of trading. How to trade forex exotic( forex )Exotic are traded in similar method to forex majors. Traders use several ways of accomplish this analysis that is: Fundamental) – this is where they appear at news which could move currency pair. One of the most news that is popular on central bank decisions, elections
- and commodity prices. Technical analysis – this might be procedure that consists of three parts which are key usage of indicators, chart patterns
- and candlestick patterns
- Indicators include tools like moving averages, Relative Strength Index (RSI), and the MACD.
Chart patterns take longer to create
Include patterns like triangles, head & shoulders, rising & falling wedges, and double top & bottom.
Candlestick Patterns
They are made of one or more candlesticks and can predict reversal or continuation.
FAQs What are exotic currency pairs?
Exotic currency pairs are those made up of developing or emerging market countries. They are thinly traded and tend to have wide spreads. Examples of popular exotic currency pairs include EUR/TRY, GBP/BRL, and SGD/EUR, among others.
Is BRL an currency that is exotic
Brazil is a major emerging market country. However, on a global scale, the country is not a major player like the United States and the European Union. Therefore, the BRL is considered an exotic currency, making it an excellent example of exotic pairs in forex.”
Here’s the refined paragraph and the additional question:
- Examples of popular exotic forex pairs are EUR/TRY, GBP/TRY, EUR/SGD, EUR/ZAR, GBP/BRL, and others.
What is the distinction between forex majors and exotics?()A forex major consists of the US dollar as either the base or quote currency and a currency from a developed country like the euro or sterling.
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