Some currency combinations attract more attention than others when it comes to the forex market. The growing forex reserves of China are major news, but it may be more difficult to get information on the Central Bank of Sri Lanka’s need for higher reserves because of the country’s smaller economy. You’ve probably heard the term “major currency pairings.” which are some of the most commonly traded currency pairs on the market, but what are they? With exotic currency pairs, it’s the exact opposite.
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.
Because of the lesser volume, bid-ask spreads might widen, making trading more difficult. It should be stated that not all brokers will be able to trade all currencies. If governments impose exchange rate regulations, some currencies may be difficult or impossible to convert. In contrast to the main currencies, where economic growth and interest rates often drive price fluctuations, these markets are more susceptible to political turmoil.
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 Georgian Lari are one of the exotic currency pairs in the Forex market. Because of GEL’s exoticism, it should be mentioned that Georgia’s national currency is characterized by low liquidity. The main reason behind this is that there is not a big number of people who are using this money for investing, trading, and so forth.
At the moment of writing this, it should be mentioned that the GEL is valued at $0.35. Because of the government’s steps, the Georgian currency at the moment is increasing in value compared to the USD. During a year, GEL nowadays is worth the highest today.
Things To Remember
Even if you don’t plan to trade currency pairings with a high degree of risk and complexity, there are a few common-sense recommendations that may aid you in any trading strategy. Volatility, illiquidity, and political unrest in many of the currencies’ native nations, all contribute to the higher level of risk associated with exotic currency pairings. This means that you should always need to generate your risk management strategy.
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.