Exotic Currencies Trading: More Predictable Pricing Offers a Unique Forex Trading Experience

In the forex trading markets, about 60 percent of trades close out as gains. So we should all dump our 50/50 Blackjack odds and join currency trading platforms, right? Unfortunately, losing forex trades close out at a higher pip (point in percentage) than gains. If your average gain is five pips but average loss nine pips, you have had an unprofitable trading day. If you trade the major foreign currency pairs, then you know well how the tight price action in a small trading range can quickly turn a trade against you.

Beyond the major pairs, forex exotic pairs introduce a new world of risks and rewards in the currencies of emerging economies. While on one end of the risk spectrum, extreme price events such as a large devaluation are more likely, at the other end, technical pricing patterns are more predictable.

The foreign exchange market is comprised of major, minor and exotic currencies. The majors are the US Dollar, Euro, Japanese Yen, UK Pound Sterling and Swiss Franc. The minors are the major Commonwealth currencies (Canadian Dollar, Australian Dollar, New Zealand Dollar) and Scandinavian currencies (Danish Kroner, Norwegian Kroner, Swedish Krona).

All other currencies are considered exotic currencies. The most actively traded exotic currencies include the Chinese Yuan (CNY), Mexican Peso (MXN) and Singapore Dollar (SGD).

Why Choose a Currency Trading Platform with Exotic Pairs?

Exotic currencies are thinly traded currencies and consequently more volatile. In an exotic currency pair, one or both currencies have a low trading volume (e.g., US Dollar-Turkish Lira USD/TRY). The value is determined by how much of the quote currency (TRY) it takes to buy the base currency (USD). A cross rates calculator allows you to track current prices.

Exotic Pairs Risk

Exotic currencies are associated with countries with high political risk. In these developing economies, the risk is high that political changes or instability will cause depreciation in the exotic currency. Sudden political shifts (e.g., a coup d’etat) or currency devaluations are not unheard of.