Exotic forex pairs are a type of currency cross that involve the less traded coins in the investing industry. Let’s say that as there are dollars and euros, other countries have smaller currencies that despite its lack of popularity, they also have value.
As the world is full of different people and opinions, the forex market also has different currencies. Today, we are going to talk about exotic currency pairs.
Types of currencies: What are exotic forex pairs
In the forex market, an exotic currency is a coin which is barely traded, is illiquid, trade at low volume and for instance, lacks market depth. Exotics are also known as or emerging market currencies as they represent developing economies such as Colombia or South Africa.
Due to its lack of volume, trading an exotic currency is usually expensive with large spreads and tiny margins.
This type of currency is affected by different factors than the forex majors and minor pairs. Usually, exotic currencies are affected more by the political landscape and the country’s relationship with global powers.
Exotic forex pairs are more volatile than others due to the lack of volume and also the fragility of the countries they represent. Trading exotic currencies are not an easy task due to the margin you are required to use, the lack of volume, and the high volatility intrinsic to this type of currencies.
How to trade exotic pairs
There are hundreds of possible exotic pairs in the forex market, but today we will talk about a few samples in the list of exotic pairs.
How to trade exotic pairs? Although it is complicated and hard to trade an exotic pair due to its high volatility, the cross also provides tremendous trading opportunities, and with proper work and dedication, you may become a master of that pair and a profitable exotic pairs trader.
Let’s take a sample with the USD/ZAR, the dollar against the South African rand.
Historically, the South African rand was pegged to the US dollar until the end of the apartheid. However, after the end of that period, the ZAR was left for free fluctuation, and it started to get depreciation as the economy became more and more linked to the global economy.
As South Africa is an economy with vast reserves of gold that are a significant part of the country’s economy, the ZAR is linked and correlated to gold prices. Also, as the US Dollar is negatively correlated with gold prices when a stronger dollar means a weaker gold and vice-versa, the USD/ZAR is highly linked to the XAU/USD.
If the XAU/USD goes up, then the USD/ZAR will go down as both pairs have a negative correlation between themselves.
List of exotic currencies:
- EUR/TRY: Euro to Turkish lira
- USD/TRY: US Dollar to Turkish lira
- USD/MXN: Dollar to Mexican peso
- USD/ZAR: Dollar to South African rand
- GBP/ZAR: British pound to South African rand
- USD/HKD: Dollar to Hong Kong dollar
- USD/NOK: Dollar to Norwegian krone
- USD/SEK: Dollar to Swedish krona
- EUR/SEK: Euro to Swedish krona
- USD/DKK: Dollar to Danish krone
- USD/SGD: Dollar to Singapore dollar
- AUD/MXN: Australian dollar to Mexican peso
- JPY/NOK: Japanese yen to Norwegian krone
- NZD/SGD: New Zealand dollar to Singapore dollar