There are situations in the forex market in which a currency is rare, and an exotic currency is marked as such. Currently, exotic currencies are those of developing economies such as parts in the Pacific, Middle East, Africa and Asia. Also because exotic currency pairs are exchanged more thinly, by definition they ‘re less liquid. So they should not be arbitrarily traded.
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Understanding Exotic Pairs
Exotic currency pairs are major currencies, combined with emerging economies’ currencies such as the Hong Kong dollar, Mexican Peso, and other currencies from non-Euro region countries.
Major currencies are attached to stable and strong economies such as the euro and US dollar, with interest rate differentials and economic data tending to shift. However, exotic currencies often get heavily influenced by economic and political instability. These events may cause swift depreciation of an exotic currency.
These pairs are usually not traded as often due to the lack of liquidity in these markets due to high transaction costs.
Exotic pairs form a smaller amount of the overall forex market. They generally feature broader spreads and small volumes of trading, lack market depth, and are illiquid. Therefore anyone contemplating trading exotic pairs ought to be a competent trader with positive and solid experience of the market.
Live Markets and Data Exotic Currency Pairs
The currency market is especially susceptible to short – term fluctuations induced by the release of the U.S. economic news as well as that of the rest of the world economic news. If you want to trade news in the forex market successfully, there are a few important factors to consider: fully understanding when to expect reports, knowing the releases that are most important given the present economic circumstances, and knowing how to trade on the basis of these market-moving data.
Trading exotic options is one potential answer to catching a volatility breakout without facing the possibility of a reversal. Exotic options generally have rates of barriers and will be profitable or unprofitable depending on whether the level of barriers is violated. The payout is predetermined and the payout is based on the premium or price of the option.
Here are the most common exotic news release options for effective trading :
- One-touch option
- Double one-touch option
While exotic Forex pairs may be risky, you may find they suit your style of trading. The best way to do that is to give them a try in a risk-free environment like a demo account.