Have You Ever Wondered What Are The Exotic Pairs In Forex Trading?

Currency pairs, which consist of a base currency (the first currency specified) and a quote currency, are used to trade all currencies. It shows how many units of the base currency are needed to buy one unit of the quote currency.

The Euro (EU) is the base currency in the currency pair EUR/USD, the most traded currency pair in the world, while the US Dollar (USD) is the quote currency. If the advertised price is 1.2000, a trader will pay 1.20 USD to purchase one EUR.

There are many different types of currency pairs. The type of currency pair affects trading activity, liquidity, and, as a result, how much a trader can make. So, traders are getting more and more interested in exotic currency pairings because they can make more money with them.

Currency Pairs Exotic vs. Majors and Crosses

The main currency pairings are the most traded currency pairs in the world. These are appealing to traders since they represent the world's most stable economies. They also have modest spreads.

• EUR/USD

• USD/JPY

• GBP/USD

• USD/CHF

Crosses, on the other hand, are currency pairings that do not include the USD. These are often calculated using major non-USD currencies such as EUR, GBP, and JPY. Euro crosses, for example, include:

• EUR/GBP

• EUR/CHF

• EUR/AUD

Exotic Currency Pairs are different from other currency pairs in that they include a major currency (typically the US dollar) and a currency from a developing or emerging economy. Traders are exposed to currencies from Asia, Africa, the Middle East, and other regions.

Popular Exotic Couples

• USD/HUF (US Dollar/Hungarian Forint)

• USD/SEK (US Dollar/Swedish Krona)

• USD/TRY (US Dollar/Turkish Lira)

• USD/CZK (US Dollar/Czech Krona)

• USD/NOK (US Dollar/Norwegian Krone)

• USD/MXN (US Dollar/Mexican Peso)

• USD/ZAR (US Dollar/South African Rand)

• USD/THB (US Dollar/Thai Baht)

• EUR/TRY (Euro/Turkish Lira)

• EUR/HUF (Euro/Hungarian Forint)

• EUR/CZK (Euro/Czech Krona)

Exotic Currency Pairs: Why Would Traders Prefer Them？

Exotic pairings are less often traded than majors and crosses. However, because of the benefits they provide, many traders continue to gravitate toward them.

• Possibility of increased profit. Seasoned traders recognize the extended but relatively predictable trends in exotic pairings that generate large profits. Furthermore, exotic currencies will likely make large jumps higher due to their developing economies, as opposed to stable but plateauing big currencies.

• Increased interest rates. Developing-country interest rates are often higher than those in industrialized ones. This disparity makes exotic pair trading appealing to carry traders.

The Negatives

Aside from bigger spreads, traders often say that they prefer majors and crosses because they have less liquidity and more volatility.

Reduced Liquidity

Exotic pairings have less trading activity than majors and crosses because they have less liquidity. There are fewer traders and a smaller trading volume.

Think about the Bank for International Settlements (BIS) Triennial Central Bank Survey for 2019. In 2019, the USD/EUR, a significant pair, accounted for 24.0% of all trading activity. In comparison, USD/MXN accounts for just 1.6% of the total. Other exotic pairings, such as USD/NOK (1.1%), USD/TRY (0.9%), and EUR/HUF (0.2%), also account for a tiny amount of trade activity.

Increased Volatility

In a volatile market, prices vary fast and dramatically. While trading unusual pairings allow for higher profit, it also increases the chance of loss.

The danger of FX slippage rises when liquidity is low and volatility is high. Slippage occurs when a market order is executed or a stop loss closes a trade at a price other than the order.

Popular Trading Techniques

Here are a few tactics to consider if you want to trade exotic pairs:

• Trading on the Breakout. This is buying or selling when the price breaks through the previous support or resistance level. It necessitates in-depth technical and fundamental studies of price fluctuations.

• Trading on the range. This entails trading inside a predefined range of support and resistance. A trader seeks to benefit from the range's peaks and troughs.

• Trading in carrying. This entails borrowing money in a low-interest-rate currency and utilizing it to purchase higher-yielding currency.

Use Fair Forex to Leverage Exotic Currency Pair Trading

Fair Forex can assist you in making the most of trading exotic currency pairings, whether you have done so before or not. Fair Forex is a foreign exchange firm that provides some of the market's finest prices. Enjoy cheap commissions and spreads, low withdrawal costs, and lightning-fast execution.

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