Best Exotic Forex Pairs to Trade
Forex trading is the buying and selling of currency pairs. It entails the opening and closing of trade positions based on the speculation of currencies. Forex trading is the biggest online trade in the world. The forex market is actively traded with about 1.6 trillion every day, making it the most traded market. Most traders trade the major currency pairs because it is the most available. The exotic pairs and minor pairs are overlooked by most of these traders. Trading the exotics pairs can be confusing and tasking especially if you don’t understand the basic procedure.
What are Exotic Pairs?
Exotic pairs are currency pairs that are neither minor nor major currency pairs. Let me explain,
Major pairs are currency pairs that are paired with US dollars. These pairs are highly liquid and actively traded by forex traders. They include:
EUR/USD the euro vs the U.S dollar
GBP/USD the British pound vs the U.S dollar
JPY/USD the Japanese Yen vs the U.S dollar
AUD/USD the Australian dollars vs the U.S dollars
CAD/USD the Canadian dollars vs the U.S dollars
NZD/USD the New Zealand dollars vs the U.S dollars
CHF/USD Swiss Franc vs the U.D dollars.
These are the main major pairs in the Forex trading industry. These currency pairs are actively traded by traders because of their high liquidity and profitability.
Minor pairs are currency pairs that are not paired with the USD. They are currency pairs of Major pairs without the U.S dollar. They include EUR/CHF, GBP/AUD, CAD/JPY.
These are currency pairs that include the pairing of two currencies. One major pair and one other currency from developing countries. They are currency pairs of a low country value.
Most traders tend to overlook these currency pairs because of their high volatility and low liquidity. However, trading the exotics can be very rewarding if traded. The major reason why traders don’t trade the exotics is due to its lack of popularity among traders. Additionally, most educational sectors are biased about these currency pairs. There are numerous educational posts online stating that it is not advisable to trade exotics. As a new trader, coming into the forex environment, the first thing you get introduced to is the Major pairs, nobody talks about the exotic because of the many biased educational materials stating that the currency is unprofitable.
Types of Exotic Pairs
There are several exotic pairs available in the Forex industry, they include:
AUD/PLN Australian Dollar vs Polish Zloty)
CAD/SGD Canadian Dollar vs Singapore Dollar
AUD/SEK Australian Dollar vs Swedish Krona
AUD/SGD Australian Dollar vs Singapore Dollar
AUD/NOK Australian Dollar vs Norwegian Krone
CHF/SEK Swiss Franc vs Swedish Krona
CHF/SGD Swiss Franc vs Singapore Dollar
EUR/CZK Euro/Czech Republic Koruna
EUR/HUF Euro vs Hungarian Forint
EUR/NOK Euro vs Norwegian Krone
EUR/PLN Euro vs Polish Zloty
EUR/RON Euro vs Romanian Leu
EUR/RUB Euro vs Russian Ruble
EUR/SEK Euro vs Swedish Krona
EUR/SGD Euro vs the Singapore Dollar
EUR/TRY Euro vs Turkish Lira
EUR/ZAR Euro vs South Africa Rand
GBP/CZK British Pound vs Czech Republic Koruna
GBP/HUF British Pound vs Hungarian Forint
GBP/MXN British Pound vs Mexican Peso
GBP/NOK British Pound vs Norwegian Krone
GBP/PLN British Pound/ vs Polish Zloty
GBP/SEK British Pound vs Swedish Krona
GBP/SGD British Pound/Singapore Dollar)
GBP/TRY British Pound vs Turkish Lira
MXN/JPY Mexican Peso vs Japanese Yen
NOK/JPY Norwegian Krone vs Japanese Yen
SGD/JPY (Singapore Dollar vs Japanese Yen)
TRY/JPY Turkish Lira vs Japanese Yen
ZAR/JPY South Africa Rand vs Japanese Yen
USD/CZK US Dollar vs Czech Republic Koruna
USD/THB US Dollar vs Thai Baht
USD/TRY US Dollar vs Turkish Lira
USD/ZAR (US Dollar/South Africa Rand)
USD/HUF US Dollar vs Hungarian Forint
USD/ILS US Dollar vs Israeli Shekel
USD/MXN US Dollar vs Mexican Peso
USD/NOK US Dollar vs Norwegian Krone
USD/PLN US Dollar vs Polish Zloty
USD/RON US Dollar vs Romanian Leu
USD/RUB US Dollar vs Russian Ruble
USD/SEK US Dollar vs Swedish Krona
USD/SGD US Dollar vs Singapore Dollar
Are Exotic Pairs worth Trading?
Exotic pairs can be highly volatile, but with a good trading strategy, a trader is bound to generate profits from trading the exotics. Just like every other currency pair, the rate of a currency pair fluctuates, which leads to instability in the market. However, trading exotic pairs can be expensive, but the profits generated at the end of the trade are worth it. To make profits from exotic pairs you need to be able to carefully survey the markets. This will help you pick out the best trading opportunity that suits your trading plan.
What are the Best Exotic Forex Pairs to Trade?
The best exotics to trade are as follows:
JPY/NOK – Japanese yen vs Norwegian krone
GBP/ZAR – British pound vs South African Rand
AUD/MXN – Australian dollar vs Mexican peso
EUR/TRY – euro vs Turkish lira
USD/THB – US dollar vs Thailand baht
Trading the Exotic Pairs
The exotic pairs are the least traded currency pairs in the Forex industry. However, they can easily be traded through any forex broker or market maker.
Before opening trade on exotic pairs, make sure you do a thorough market analysis. Do a thorough fundamental and technical analysis before opening a trade.
Listed below are steps on trading the exotics
- Sign up with a good and reputable forex broker. Also, make sure the broker is regulated by a regulatory body. However, in some cases, there are good forex brokers who are not yet regulated.
- Create an adequate trading plan based on your market analysis.
- Download a trading platform, or you can use the broker’s trading platform.
- Locate the exotic pairs on your trading platform.
- Choose the volume of trade you want to open.
- Set your stop loss and take profit orders.
- Start trading.
Strategies used in Trading Exotics
There are a lot of strategies used in trading exotics. No strategy is superior to the other, they all have the same end goal, which is to provide profitable trades. It is advisable to learn how to trade using different strategies because each strategy has a time when it is more profitable than the other. The many strategies used by forex traders can be categorized based on the positions the trades are being held, a long or short position. It is also categorized based on the timeframe of the trade.
Listed below are a few strategies used by traders to trade exotic pairs.
- Day trading
- Swing trading
- Position trading
Day trading is a strategy used by several forex traders to trade every currency pair including the exotics pairs. It entails the trader taking advantage of the price movements in a day. This set of traders do not open positions overnight, they open and close trades from the beginning of the day to the end of the day. This strategy requires low commissions and fast trade execution. The whole strategy is entirely based on technical analysis. Traders make use of technical indicators such as moving averages, and the RSI relative strength index to pinpoint the right time to enter and exit a trade.
This is the normal yarding strategy used by every forex trader. This strategy entails the entering and exiting of a trade based on the price movement of a currency pair. If a trader wants to go long in swing trade, the trader will wait for the price of a currency to swing below the support level. This means it’s the right time to buy, and hold the position, and when the price of the currency pair swings above the resistance level, the trader opens a short trade. This strategy is based on Fundamental and technical analysis.
This is the trading strategy that requires the use of technical indicators to pinpoint the right time to enter and exit a trade. Traders who use this strategy are mainly short-term traders who try to take advantage of the small price movements in the Forex market. The trade positions are held for seconds. The profits generated from these small price movements end up piling up forming a huge profit in the long run. This trading strategy requires quick trade execution to avoid slippage.
This is a long-term forex trading strategy. This trading strategy involves the holding of forex positions for a long time. It could take days, weeks, months, or years. This trading strategy is based on fundamental analysis. It is similar to conventional stock trading where positions are opened and held for a very long time. In this strategy, a trader needs to be sure that the broker being traded with, is going to remain in business for a long time, and that the security of their funds is assured.
Advantages of Trading Exotic Pairs
There are a lot of advantages that come with trading exotic pairs. They are as follows:
- The exotic currency pairs are not competitive. The market does not correlate with any other market such as bonds, and equity.
- High Volatility: the exotic currency pairs are highly volatile. They have the highest volatility when it comes to the Major currency pairs and Minor currency pairs. Some traders might see this as a disadvantage, but then this is a huge advantage because it provides opportunities for more trades and more profits.
Disadvantages of Trading Exotic Pairs
Just like every other currency trading, trading the exotics has its disadvantages. Most traders avoid trading the currency pair due to its disadvantages. However, these disadvantages are encountered in almost all currency trades, irrespective of the currency pairs involved.
Listed below are some of the disadvantages of trading an exotic currency pair.
- Less liquidity: This is the major concern of every forex trader. The exotic currency pairs are the least traded pair among all currency pairs. This results in less liquidity of the pair because it is not actively traded. A trader might find it difficult to enter and exit a trade whenever he or she wants, due to less liquidity.
- Volatility: This is as much an advantage as it is a disadvantage. This is because high volatility can also result in loss of funds just like it is an opportunity to open more trade positions.
- Spreads: Most traders who trade major currency pairs do so because of the right spreads. Most forex brokers charge tight spreads when it comes to the Major currency pairs. With an exotic pair, the spread charges are high. This is because trading the exotics requires more capacity, and more capital means high spreads.
- The Rush of devaluation: Exotic pairs entail the trading of a major currency and the currency of a developing country. This means that any slightest news can result in the devaluation of the currency. This is a high risk because it could generally lead to loss of profits and funds.
Why do Traders avoid Trading the Exotics?
Traders avoid exotic currency pairs for so many reasons.
- The misconceptions surrounding the currency pairs scare traders away from actively trading the pair
- Many traders do not have the required capital needed to trade the pairs. Exotic pairs require a lot of capital and most traders do not have the required capital.
- Exotic pairs are not popular among forex traders. The currency pair lacks popularity. They make new traders not notice it on time.
- Most traders prefer to stick with what they know best rather than try out new forms of trade.
- Most forex traders do not have the time to provide the technicality that comes with trading exotic pairs. This is because the currency pairs require more of a technical approach than a fundamental approach.
There are a lot of misconceptions surrounding trading exotics. This misconception has swayed traders from trading the currency pair. Although trading the exotic pair requires a technical approach, it is still a profitable form of investment. Many traders who trade these currency pairs make use of huge capital and they are mainly traded by banks. In the case of liquidity, the banks actively trade these currency pairs thereby providing the liquidity needed.