What are exotic pairs?
Exotic currency pairs are categories of the foreign exchange (Forex) market, and they represent a combination of financial markets. These pairs are characterized by the coupling of a major currency, like the US dollar, the euro, or the Japanese yen, with the currency of an emerging or developing economy.
Exotic currency pairs are less traded, compared to the well-known major currency pairs, such as EUR/USD (euro/US dollar), USD/JPY (US dollar/Japanese yen),GBP/USD (British pound/US dollar), USD/CHF (US dollar/Swiss franc) etc. Typically, the underlying currencies in exotic pairs come from countries that have not yet attained the same level of economic growth on the global stage as their major currency counterparts.
Here is a list of some Forex exotic pairs:
- AUD/CZK (Australian dollar/Czech koruna)
- AUD/NOK (Australian dollar/Norwegian krone)
- AUD/PLN (Australian dollar/Polish zloty)
- CAD/HUF (Canadian dollar/Hungarian forint)
- CAD/NOK (Canadian dollar/Norwegian krone)
- CHF/SEK (Swiss franc/Swedish krona)
- EUR/CZK (Euro/Czech koruna)
- EUR/HUF (Euro/Hungarian forint)
- EUR/NOK (Euro/Norwegian krone)
- EUR/PLN (Euro/Polish zloty)
- EUR/SEK (Euro/Swedish krona)
- GBP/CZK (British pound/Czech koruna)
- GBP/HUF (British pound/Hungarian forint)
- GBP/NOK (British pound/Norwegian krone)
- GBP/PLN (British pound/Polish zloty)
- GBP/SEK (British pound/Swedish krona)
- NZD/CZK (New Zealand dollar/Czech koruna)
- NZD/HUF (New Zealand dollar/Hungarian forint)
- USD/CZK (US dollar/Czech koruna)
- USD/HUF (US dollar/Hungarian forint)
- USD/NOK (US dollar/Norwegian krone)
- USD/SEK (US dollar/Swedish krona)
- USD/TRY (US dollar/Turkish lira)
- USD/MXN (US dollar/Mexican peso)
- USD/BRL (US dollar/Brazilian real)
- USD/INR (US dollar/Indian rupee)
- USD/ZAR (US dollar/South African rand)
- EUR/TRY (Euro/Turkish lira)
- EUR/MXN (Euro/Mexican peso)
- EUR/BRL (Euro/Brazilian real)
- EUR/INR (Euro/Indian rupee)
- EUR/RUB (Euro/Russian ruble)
- EUR/ZAR (Euro/South African rand)
- GBP/TRY (British pound/Turkish lira)
- GBP/MXN (British pound/Mexican peso)
- GBP/BRL (British pound/Brazilian real)
- GBP/INR (British pound/Indian rupee)
- GBP/RUB (British pound/Russian ruble)
- GBP/ZAR (British pound/South African rand)
Advantages of trading exotic currency pairs:
High Volatility: Compared to major pairs, exotic pairs frequently show larger price swings. This increased volatility can provide opportunities for substantial profits if traders can anticipate and capitalize on market movements.
Diversification: Including exotic pairs in a trading portfolio can help diversify risk. These pairs may not always correlate with other assets or major pairs, providing some protection against changes in the overall market.
Unique Market Insights: Trading exotic pairs requires a deep understanding of the economies and political climates of the countries involved. This can provide valuable insights into global events and trends that may impact other markets.
Less Competition: Since exotic pairs are less frequently traded, there is potentially less competition.
Potential for Higher Returns: Due to their higher volatility, exotic pairs have the potential to produce higher returns in less time if traders are successful at anticipating price movements.
Here are some tips for trading exotic currency pairs:
- Do your research. Do your homework and understand the risks involved before you start trading any currency pairs. This is especially important for exotic pairs, which are less commonly traded and more volatile than major currency pairs.
- Use a trustworthy broker. Make sure to select a reputable and licensed broker. This will help to protect you from fraud and other scams. CMTrading is fully licenced and regulated.
- Start small. When you are first starting out, it is best to start with a small investment. This will help to limit your losses if the market moves against you. You can start with as little as a $100.
- Use the platform’s features such as signals and stop loss. It is important to use risk management strategies when trading any currency pair, but this is especially important for exotic pairs. This includes using stop-loss orders and position sizing to limit your losses.
- Be patient. Exotic pairs can be more difficult to trade than major currency pairs, so it is important to be patient and disciplined when trading them.
Trading on your demo account:
Risk-Free Learning: Trading exotic pairs can be riskier due to their higher volatility and wider spreads. A demo account allows you to familiarize yourself with these unique characteristics without risking real capital.
Understanding Volatility: Exotic pairs tend to experience more significant price fluctuations. Practicing with a demo account helps you get a feel for this volatility and develop strategies to manage it effectively.
Pair-Specific Analysis: Each exotic pair has its own economic and geopolitical factors that influence its movements. With a demo account, you can focus on specific pairs, study their drivers, and develop trading plans tailored to their dynamics.
Testing Strategies: You can test various trading strategies, such as trend following, range trading, or breakout strategies, to determine which ones work best for exotic pairs. This exploration can help you find strategies that align with these pairs’ unique characteristics.
Psychological factors: Trading exotic pairs can be emotionally challenging due to their unpredictability. A demo account enables you to work on your emotional discipline and decision-making without real financial consequences.
Trading exotic currency pairs requires traders to approach them with a strategic mindset and a well-thought-out risk management strategy. Although higher profit margins are attractive, the elevated volatility also entails higher risk. In emerging markets, the interaction of economic, political, and international factors can cause sharp and significant price swings.
For traders who are well-prepared, have a thorough understanding of the relevant markets, and use efficient risk management strategies, trading exotic pairs can be a profitable endeavour. Before engaging in exotic pair trading with real money, it is crucial to use techniques like demo trading to gain experience while also being aware of the high level of risk and potential for gain.
CMTrading is a regulated South African online trading broker that offers a diverse range of financial products and services. It specializes in granting access to trading in various markets, including forex, commodities, indices, and cryptocurrencies. CMTrading aims to provide a user-friendly trading experience by offering both beginner-friendly features and advanced trading tools for experienced traders. With a focus on customer support and education, CMTrading provides resources such as webinars, tutorials, and personalized assistance to help traders make informed decisions.
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