Exotic Currency Pairs
Trading Exotic Currency Pairs
In the world of currency trading, currencies have different strengths. The world’s strongest currencies are called major currencies which usually belong to countries with relatively strong economies. These are also the most traded currencies and make up the majority of trades that take place in the financial markets. There is a broad agreement about which are the major currencies; these are the US dollar (USD), the euro (EUR), the British pound (GBP), the Swiss franc (CHF) and the Japanese Yen (JPY). Some groups also include the Australian dollar (AUD) as a major currency, although it is often considered a minor. Minor currencies also include the Canadian dollar (CAD) and the New Zealand dollar (NZD).
Another group of currencies that are traded in the financial markets are exotic currencies which are not as strong as the major currencies and are highly volatile in nature. For this reason, these currencies are traded in lesser quantities or used purely to facilitate international trade. Examples of exotic currencies are any currencies other than the heavily traded major currencies such as the South African rand, the Korean won, the Indian rupee, the Thai baht, the Uruguay peso and the Iraqi dinari.
The remaining Scandinavian currencies such as the Swedish Krona, Norwegian Kroner and Danish Kroner are sometimes categorised as exotic currencies, but some traders consider them minor currencies due to the greater liquidity observed in their respective markets.
Exotic currencies are neither major nor minor, but they are still important in the financial markets. Exotic currency trading is different from trading in major currencies because of the level of interest in them in the market. The relative lack of activity in the exotic currency market means the currencies can have a high cost and carry a high risk. They are not particularly easy to understand nor are they very secure. It is a well- known fact that the political and financial environments in developing countries may change quickly and cause the country’s currency to rise or fall in value; exotic currencies belong to these countries with unstable economies and volatile political environments.
High risk however, can present a trader with opportunities and trading exotic currencies can be just as profitable as major currencies. Although it is not particularly easy to predict the path of the currency pair price movements with exotics, if you do decide, for example, to trade exotic pairs with a binary options broker such as Banc De Binary, you should find plenty of opportunities to make profits from your trades.
The ability to anticipate sudden changes that inevitably occur with these currencies and to overcome the insecurity of trading exotic currencies which defy the usual logical analysis, mean that you could stand to gain substantially from trading these pairs. As always, knowing the background situation of the currency and using the appropriate trading tools helps to make a decision about whether or not to trade. This is a requirement with any currency pair that you decide to trade, but in the case of exotic currencies, it is absolutely vital.