If you are new to the forex trading world, you must know that all major currency pairs traded are selected from powerful countries. Several currencies are not related to big countries. Exotic pairs are also one such pair. These pairs are usually selected from the combination of major currency pairs of different countries. It is not traded as often as other major currencies. The reason is that these are chosen from less developed countries. So many traders want to know are these pairs are worth trading. Let’s read a short answer!
Generally speaking, these are not worth trading in some aspects. According to experts, there are a lot of risk factors that may cause failure. This pair comprises one currency of a developing country and the other of a developed country. So, there is high volatility and less popularity to trade successfully.
However, if you decide to trade with these currency pairs, you must know all the basic information about exotic currency pairs. To make it easy for you, we have collected some pros and cons of these pairs. We have also mentioned some tips to trade successfully. To know more about it, let’s explore this post.
What Are Exotic Currency Pairs
Exotic currency pair doesn’t trade like other big currency pairs. The reason is that these currencies belong to smaller, underdeveloped countries or because the economies of these countries are weak.
Exotic currency pairs can offer big opportunities for traders but also big chances of risk. It happens because the markets for these currencies are less liquid, which can cause wider spreads and great chances of losing money.
So, should you be willing to trade exotic currency pairs? You can do it if you can bear the risk and your trading strategy is good. If you’re comfortable with the risk and confident in your ability to read the market, then go for it! But if you’re new to trading or are unsure about taking on extra risk, then it might be best to stick to the more-liquid pairs.
Pros And Cons Of Exotic Currency Pairs
Once you have decided to trade currency pairs, it’s important to know all available options. Exotic currency pairs are one of these options. These currencies are not traded typically. It can be risky to trade these pairs, but there are also many benefits of exotic currency pairs. Let’s explore some pros and cons of these currency pairs!
Pros Of Exotic Currency Pairs
- It is highly profitable
- Interest rates are high
- It offers a higher return
Cons Of Exotic Currency Pairs
- It has low liquidity
- Levels of volatility are high
- High-risk and small leverage
- Suddenly change correlations
- Take a lot of time to understand
- Long calendars
Tips For Successful Trades With Exotic Pairs
After reading all the pros and cons of exotic pairs, the decision is yours. If you think you can trade these pairs, follow the tips below for successful trading.
- Complete your research: Exotic currencies are volatile, so it’s important to be up to date on the latest news and understand the economy of the countries before you start trading.
- Observe risk factors: Exotic pairs have inherent volatility, so it’s important to use proper risk management when trading exotics. It can be done by setting appropriate stop losses and not overextending yourself.
- Plan your trades: Don’t just jump into the market unprepared. It may drop your trading level badly. It would be best if you had an overall strategy and an idea of where you want to enter and exit a position before committing to a trade. This will help you to survive in the market as a successful trader.
- Select conservative pairs: If you have limited experience with exotic currencies, it’s best to stick with the more conventional currency pairs, such as the New Taiwan Dollar (TWD) or Singapore Dollar (SGD). These pairs have lower spreads and fewer unpredictable economic events than other exotic currencies.
How To Find the Best Exotic Currency Pairs
Now it’s time to find the best exotic currency pair for your trading plans. For this, it’s important to observe several factors. First, you should decide which currency pairs you want to trade. Your selected pair also matches your trading strategies. Each pair has different spreads, so make sure to research and compare them before making your decision.
It would be best if you also thought about how much leverage you want to take and what risk relish you have. Additionally, how much risk and loss you can afford? Exotics pairs are more volatile than major currency pairs so there is a possibility for higher risk and higher rewards. Make sure that your trading decisions are in favor of your risk management strategy.
Finally, observe the economic conditions of the countries whose currencies you’re trading. Look at their GDP growth rate and other trends that might affect their currency values in the future. This will help you to understand the risks in a better way and the possible rewards related to trading these pairs.
Exotic currencies are specific in the forex trading market. You may have a lot of time to study its features and understand it completely and thoroughly. It is not easy to trade these currency pairs if you are trading with technical analysis.
How should you know exotic currency pairs are worth trading for you? It’s very simple. After getting complete info and deeply studying the history and features of these pairs, you will be able to set a perfect trading setup. As a result, you may achieve the best ratio of profit and rewards.
A trader’s profitability depends on the tolerance level that he shows while trading these currency pairs. You must have tolerance and confidence when you start your trading career. By selecting these pairs, you must be aware of the losses and risks you have to face.
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