Exotic currency pairs are special trading opportunities within the foreign exchange market. They differ from major currency pairs since they are not liquid currencies. Major currency pairs are the pairings among the highly liquid or always-cheaper currencies such as the euro, pound, Swiss Franc, Canadian Dollar, or NZD, among others.

This article will define exotic currency pairs, show how they differ from other pairs, and show the types available to traders. By the end of the article, you will better understand how to approach trading these pairs more effectively.

What are Exotic Currency Pairs?

Other exotic currency pairs combine one major currency with one from an emerging market or a developing economy.

For instance, a very common exotic pair is USD/THB (the US dollar against the Thai baht). Compared with the major pairs, these pairs have lower liquidity and higher volatility, sometimes leading to wider spreads and greater price movements.

What are Major, Minor, and Exotic Currency Pairs?

Currency pairs fall into three broad categories: major, minor, and exotic currency pairs. Forex investors are well versed in the distinctions in the Forex market:

1. Major Pairs: Most liquid in the world, and contain mostly USD. Examples include: EUR/USD, USD/JPY, and GBP/USD. Major pairs typically show a very high degree of liquidity, tight spreads, and relatively low volatility. They are also ranked amongst some of the favorite options for most traders.

2. Minor Pairs: Minor pairs are the ones which do not support US Dollars. Some examples of minor pairs are EUR/GBP, AUD/NZD, and GBP/CHF. Also, they support great liquidity; however, their volatility levels are normally higher compared to major pairs that may also act as an opportunity and a challenge to the traders.

3. Exotic Pairs: This is a currency pair in which the Major currency is paired with an emerging economy’s currency. Examples include USD/TRY, that is, Turkish Lira, USD/ZAR, which is the South African Rand, and EUR/THB, that is, Thai Baht. Overall, such currency pairs usually have relatively lower liquidity, and one sees wider spreads, which result in relatively higher risk along with a potential for better returns.

7 Types of Exotic Currency Pairs

1. USD/THB

This is the currency pair that reflects the US dollar and Thai baht relationship. Dealers always consider the economic and political growth of Thailand which weighs majorly in this exotic currency pair.

Tourism also contributes to the economy of Thailand. Changes in the same may have an impact on the value of the baht, while U.S. monetary policy and global economic situations remain factors of exchange rates.

2. USD/ZAR

The South African rand is highly vulnerable to commodity prices as this is a country abundant with natural resources. This pair will be expected to have much volatility, especially in case of changes in economic terms.

Market investors are in great interest in tracking the commodities trend globally, especially gold and platinum since South Africa is a massive manufacturer. Political stability and economic reforms in South Africa similarly influence investor’s psychology and currency value.

3. EUR/TRY

In this exotic currency pair, the Euro is traded for the Turkish lira. Politics in Turkey and even inflation have tended to draw more interest from traders as these factors are among those that lead to further price movement changes.

The recent economic instability and the new fiscal policies in Turkey have been increasing the volatility of the pair. The investment sentiment about the stability of the economy of the Eurozone and also the trade condition with Turkey contributes much to forming the actual price.

4. USD/HUF

Such currency pairs are highly volatile if the news occurring in this market is related to any economic indicators or monetary policy decisions. It’s considered an exotic currency pair for reasons of low trading volume in comparison to the major pairs, such as EUR/USD or USD/JPY.

This can make the exchange rate for USD/HUF, for example, highly susceptible to economic events like changes in interest rates or inflation in both the U.S. and Hungary and to geopolitical events.

5. EUR/PLN

The Euro has been crossed with the Polish Zloty. In the wake of this, the economy of Poland is booming, and interest has been very vivid among Forex traders in a pair to make money through the zloty movement.

Economic growth in Poland, caused by strong manufacturing and exports, has resulted in a strengthening of the zloty against the Euro. Moreover, developments in EU policies and regulations affecting Poland may cause shocking fluctuations in this currency pair.

6. USD/SGD

The Singapore dollar is a safe currency of Asia. The currency pair is extremely popular among traders interested in Asian markets and the dynamics of worldwide trade. Strong, as well as ideally located financial sectors, of growing trading hubs created in Singapore make SGD one of the more stable currencies.

Some of the factors that the currency pair finds itself underlying include economic releases concerning GDP growth and trade balances and Monetary policy by the Monetary Authority of Singapore.

7.  USD/INR

It couples the US dollar with the Indian rupee. The traders relate their assessment of reform measures and bilateral trade between the US and India as trading opportunities. There are a few factors that might be influential, such as the economic growth rate in India, inflation rates, and even some government policies.

A couple of additional factors that might influence the Indian Rupee movements include global oil prices because India is one of the largest oil-importing countries. Its economy, therefore, gets impacted directly by changes in international oil prices, which create unstable exchange rate economics in terms of USD and INR.

Conclusion

Exotic currency pairs are fascinating opportunities in Forex, but they have a special form of challenge. The knowledge of what exotic currency pairs are, what makes a difference between major and minor pairs, and what forms exotic pairs can help one make more informed decisions on trading.

With this, therefore, keep abreast of what is happening in terms of economic news and trends and maybe use an equally reliable trading platform like FXGiants for online trading. Using MetaTrader 4 as well as suitable CFD trading opportunities you will find your way into this deep market.

FAQs

1. What are exotic currency pairs?

Exotic currency pairs refer to the pairing of a major currency with the currency of an emerging market, which thereby offers a means of realizing unique trading opportunities.

2. How are exotics currency pairs different from the majors?

Exotic currency pairs are termed as relatively less liquid and more volatile in comparison to their major counterparts, who, in general, tend to exhibit greater liquidity and tighter spreads.

3. Which factors affect exotic currency pairs?

Several economic indicators, geopolitical events, market liquidity, interest rates, and global trade dynamics can influence exotic currency pairs.

4. Where are exotic currency pairs traded?

You can trade exotic currency pairs on a platform like FXGiants, which will give you the resources for effective Forex trading.

5. How risky is the trading of exotic currency pairs? Trading exotic currency pairs is highly risky. Their liquidity is lower, and the spot is much more volatile, but with proper risk management, they can be successful.

DISCLAIMER: This information is not considered investment advice or an investment recommendation, but is instead a marketing communication