Some currency pairs attract more attention in the forex market than others. For instance, China’s rising foreign exchange reserves often make headlines, while updates about the Central Bank of Sri Lanka increasing its reserves receive less coverage due to the country’s smaller economy.
You’ve likely heard of “major currency pairs,” which are the most widely traded pairs in the market. Exotic currency pairs are the opposite—they involve less commonly traded currencies and attract lower market attention.
Forex traders typically use the term “exotic currency” to describe any currency that isn’t often utilized in international commerce. Developing or emerging nations’ economies are notoriously turbulent, and this is reflected in the high volatility of the currencies they issue. Because of the low trading volume, exotic currencies are often not particularly liquid.
Due to lower trading volume, bid-ask spreads can widen, which makes trading more challenging. Not all brokers offer access to every currency, and government-imposed exchange rate controls can make certain currencies difficult or even impossible to convert. Unlike major currencies, where price movements are typically driven by economic growth and interest rates, these markets are more sensitive to political instability.
Exotic Currencies Traded In Forex
You’ll need to investigate the economics of both countries to grasp a currency pair. Commodity currencies refer to national economies that are heavily reliant on the import or export of certain commodities. Other countries’ economies have a wider range of sectors, which makes them more stable.
USD/THB
Because of the US’s strong currency, which is often a mainstay of the global economy, the Dollar is the most widely traded currency in the world. As a result of new policies from the Federal Reserve and stimulus packages, the value of the dollar might fluctuate significantly. It should be mentioned that some of the most popular ways to make money from home are trading forex and especially trading with exotic currency pairs. The main reason behind this is that Forex trading is quite convenient as it allows you to trade from any place in the world. As one of the few exotic currencies that shows little reaction to a decline in China’s economy, the Thailand baht stands out. When trade discussions between the United States and China grow tense, many traders are searching for a safe haven in the form of the pair.
Although Thailand’s currency is still considered exotic, the country has Asia’s eighth-largest economy and among the world’s lowest jobless rates. Electronics and equipment are among their many exports. With low-yield bonds and significant surpluses, the Thai Baht is generally supported by the Thai government. The policies of the Bank of Thailand affect the value of the Thai baht.
AUD/MXN
Due to its commodity-based nature, the Australian Dollar is prone to fluctuations. Australia’s economy is highly dependent on the price of coal and iron ore, as well as petroleum and gold, since it is the world’s largest exporter of these commodities.
As gold prices climb, the Australian dollar is expected to rise as well. In terms of iron exports, China is Australia’s greatest consumer, and this has a direct impact on the Australian economy. Likewise, Mexico’s economy is heavily reliant on the country’s exports. Tariffs, NAFTA policy changes, and supply chain adjustments may influence the Mexican Peso.
USD/GEL
The U.S. Dollar and the Georgian Lari (GEL) represent one of the exotic currency pairs in the forex market. As an exotic currency, the GEL is characterized by relatively low liquidity. This is mainly because it is not widely used in global investment and trading activities, and the number of market participants dealing with the Georgian currency remains limited.
At the time of writing, the GEL is valued at approximately $0.35. Following recent government measures and economic policies, the Georgian currency has been appreciating against the U.S. Dollar. Over the past year, the GEL has reached its highest level compared to the USD.
Things To Remember
Even if you do not intend to trade high-risk or complex currency pairs, there are practical guidelines that can support any trading approach. Exotic currency pairs carry higher risk due to factors such as volatility, low liquidity, and political instability in their home countries. For this reason, it is essential to develop and follow a clear risk management strategy before entering the market.
Most forex brokers provide demo accounts so that you may practice trading without risking real money. If you’re not sure which combinations make the most sense to you, try using a sample account and see what returns you get. Adding stop losses to your transactions might also help you avoid losing too much money. Commodity currency traders may be able to use counter-investments in the opposing currency to hedge their forex transactions during especially volatile periods. When you trade forex, you are making a long-term commitment.
When you start to invest your money in exotic currency pairs, you need to watch the countries’ economies, to take into consideration future price fluctuations. Whether you are new or not in the Forex industry, keep in mind that doing research is significant for your future success.