When most people think of currency trading, they think of the major currency pairs like USD/EUR or GBP/JPY. However, there are many more exotic currency pairs to trade than these. This article will explain what exotic currency pairs are, and we will give you tips on how to trade them profitably. You can visit https://www.home.saxo/en-sg/products/forex for more information and to start trading exotic currency pairs today.
What are exotic currency pairs?
Regarding forex trading, it makes sense that most people stick to the major currency pairs. However, there are plenty of opportunities for exotic currency pairs.
These are currencies from emerging markets, such as pairings between the Moroccan Dirham, the Malaysian Ringgit, the Jordanian Dinar, the Georgian Lari, and more. Before you start trading exotic currency pairs, it is essential to do your research and understand the risks involved.
The benefits of trading exotic currency pairs
Regarding foreign exchange trading, the focus is typically given to the major currency pairs. However, exotic currency pairs can also offer many benefits.
For one thing, they are generally less volatile than the majors, potentially providing an opportunity for traders to find a stable environment for trading. They are also relatively straightforward to trade, and they are suitable for long-term investments depending on the development of the issuing country.
The disadvantages of trading exotic currency pairs
Nevertheless, exotic pairs carry risks and disadvantages.
To begin with, they have much lower liquidity than major or minor currency pairs. This makes it difficult for traders who enter the market to exit if there are no demands from other buyers. The lower liquidity also means it is not suitable for certain trading strategies such as scalping or intra-day trading.
Another disadvantage is that the issuing country may face problems politically. This is a problem for all forex traders regardless of the currencies they trade. But it can create sudden and huge fluctuations in currency price movements.
How to trade exotic currency pairs
Exotic currency pairs comprise one primary currency and one currency from an emerging or smaller economy. These pairs are typically less traded than other major currency pairs and, as a result, can be more volatile. However, they can also offer opportunities for traders to capitalise on global events and trends.
When trading exotic currency pairs, it is essential to know the potential risks:
- These pairs often have wider spreads, which can eat into profits.
- They can be more susceptible to sudden swings in price, known as lopsided moves.
- Liquidity can be an issue with exotic currency pairs, making it difficult to enter and exit trades at the desired price.
Despite these risks, trading exotic currency pairs can be profitable carefully. By paying close attention to the market and using stop-loss orders, traders can limit their downside risk while still providing themselves with the opportunity to profit from global events.
Which brokers offer the best trading conditions for exotic currency pairs
When trading in the foreign exchange market, choosing a broker that offers the best possible conditions for the specific currency pairs you are interested in trading is crucial. For example, if you want to trade in exotic currency pairs, you must find a broker that offers a good liquidity and tight spreads for these pairs.
In addition, you will also want to find a broker that provides an excellent mobile trading platform so you can access your account and place trades on the go. Finally, it is also essential to find a broker that offers customer support if you have any questions or issues with your account. By taking the time to research different brokers and compare their offerings, you can ensure that you choose the best possible option for your needs.
Final thoughts
Trading exotic currency pairs can be profitable for traders willing to do their homework and have a firm understanding of the underlying economic factors that drive price movements. By carefully studying charts and news reports and using sound money management principles, traders can mitigate risk while taking advantage of opportunities in these less-commonly traded markets.
