Exotic forex pairs are currency pairs that are traded in low volumes and have less liquidity.
They tend to contain currencies of emerging or a strong but smaller economies.
These exotic currencies are paired along with a major currency to make up an exotic pair.
As mentioned, exotic pairs are not traded often and as a result the cost of trading these pairs can be higher.
What Is An Exotic Currency?
An exotic currency is usually a currency of a developing nations from areas such as Asia, Africa, the Middle East and the Pacific.
These currencies are normally from countries with emerging economies or with small but strong economies.
Some of the most active exotic currencies:
- HKD – Hong Kong Dollar
- MXN – Mexican Peso
- CNY – Chinese Yuan
- SGD – Singapore Dollar
- KRW – South Korean Won
- ZAR – South African Rand
- RUB – Russian Federation Ruble
- INR – Indian Rupee
Exotic currencies are not highly desirable to traders and so the volumes traded for exotic pairs tend to be low.
Because of the low volumes trade, exotic currencies lack liquidity and market depth.
However, just because an exotic currency trades at low volumes does not necessarily mean it is a weak currency.
What Makes An Exotic Pair Undesirable To Some Traders?
As we explained before, Exotic pairs are traded in a much lower volume than other currency pairs, but why?
Exotic currencies can often move due to a fragile economy or political instability making them highly volatile.
Rapid fluctuations can lead to an abrupt rise or drop in the value of the country’s currency.
Because of the high volatility, investors will require higher spreads.
This is to allow for any significant adverse fluctuations in the value of the currency.
Spreads are bigger on exotic currency rates than their majors or minors counterparts.
Trading exotic pairs is not always easy and so you should be aware of all the risks when trading them.
Other Types Of Currency Pairs
There are many currency pairs traded in the forex markets but some are more traded than others.
Currency pairs can be split into three groups, exotic pairs, minor pairs and major pairs.
We will go through them briefly below.
Major Currency Pairs
The most traded currency pairs are known as Major Pairs.
The are currency pairs all contain the U.S. dollar paired to either the Euro, the UK Pound and Yen.
Three of the most trade major currency pairs;
Minor Currency Pairs
Minor pairs consist of the Euro, the UK Pound and Yen paired against other currencies.
There are fourteen minor pairs in total.
These are some of the most traded minor currency pairs;