The currency pairs that are majorly traded in the FX market are derived from the world’s most powerful economies. That is from America, Europe, Canada, Japan, and Australia. Each one generates a unique economic profile which tends to make their currencies behave differently. The value of each country’s currency directly impacts the country’s economy and affects many other aspects of our daily lives. The USD is the most commonly traded currency as it affects us in many ways.
USD being one of the major currencies in the market, it offers traders an opportunity to trade against other major currencies like EUR, JPY, GBP, etc. But while most traders use major currencies to trade in the FX market, others prefer to use exotic pairs. Forex exotic pairs exist to satisfy the needs of traders who want to take advantage of markets that exhibit specific characteristics, such as those related to risk, liquidity, and volatility. If you also wish to understand more about exotic currency pairs and trade using them, keep reading to understand everything about them.
Forex traders have long speculated on the potential of exotic pairs, but these days they are a reality. No longer confined to the realm of theory, exotic pairs are a part of the currency trading market, and they are open to everyone. Forex exotic pairs basically consist of one major currency like the USD, EUR or JPY traded against another currency of a lower volume, e.g., TRY (Turkish Lira). They are not so different from the major currencies as they have a base and a quote currency. The only thing that makes them different from the other pairs is their volatility and liquidity in the market. As a trader, you may need to treat them differently when trading. You might not use the same trading strategies and risk management skills you always use with the other forex pairs.
Exotic pairs are what give Forex trading its diversity and appeal. There are over 20 different combinations, each with its own unique risk/reward profile and potential profit/loss scenarios. Choosing an exotic binary option allows you to take advantage of this diversity to enhance your trading strategy Dan maximize returns on your trades. Here is a list of exotic currencies you might want to use in your next trading session;
The Euro/Turkish Lira (EUR/TRY) is a forex pair that has been growing in popularity in recent years, but it’s not one you hear about as often as some other pairs. The EUR/TRY pair is a currency pair that tracks the value of the Euro against the Lira, the official currency of Turkey. Both the Euro and the Lira are common currencies used in global trade, so many traders choose to trade this pair because of its high volatility. There are so many factors that contribute to its high volatility. One is because the Turkish Lira has been through several economic crises, and after its economic reform in 2005, many traders took advantage of its volatility to make profits.
This is yet another common exotic pair traded on the forex market. The AUD is the third most traded currency globally after USD and EUR, and it is a commodity currency. The frequent seasonal price changes make this pair volatile and popular among traders. Australia deals with the exportation of iron ore, oil, beef, and gold.
The Mexican peso is also affected by trade events since the country mainly focuses on exports. The Mexico economy being ranked number 15 worldwide in terms of nominal GDP and having traded with more than 40 countries makes the Mexican peso worth noting. Since 1990 to 1995, the AUD and MXN have been going up and down relative to each other, making the exotic pair a good one to trade with.
While most exotic currencies rely on trade, the GBP and ZAR are quite different as they rely on the interests of the Bank of England. If the interest rate lowers, then the pair might be considered volatile. But as much as that is the case, the Rand still relies on exports, which consist of gold, agriculture, and the booming automotive industry that adds up to 10% of the South African exports. Unfortunately, the major sectors in South Africa are affected by weather concerns and political issues. But all in all, the GBP/ZAR exotic pair is worth a try when you get into the forex market.
It is crucial to understand the advantages and disadvantages of forex trading exotic currencies before getting into it. This will allow you to know how to tackle your trades.
Carry trading strategy is a way to make money by borrowing capital at a low-interest rate Dan investing that money in an asset that yields a higher interest rate. Carry traders seek to exploit interest rate differentials between countries by borrowing money with a low-interest rate from one country and investing it in another. Since you’re borrowing at a lower rate but paying back at a higher rate, there’s an opportunity to make money on the spread.
A range trading strategy is a type of technical analysis that is based on observing and entering into trades when the price of an underlying asset moves within a pre-determined range. Like all technical strategies, range trading strategies are used to try and identify and capitalize on trends in the market. Traders normally focus on the support and resistance levels.
This trading style relies on being able to recognize the beginning of a breakout from a previously established pattern and then entering the market while the price is still trending in the direction of the breakout.
The exotic currency market is one of the most popular forms of alternative investments. As a trader, you can take positions in exotic currencies and hold them in the form of futures or any other form you want. Another reason to choose forex exotic pairs is that they move a lot, meaning there will be plenty of opportunities to open positions and earn money.
Even if forex trading exotic currencies offer diversification, it is important to know there are plenty of risks involved. Therefore, you should try as much as possible to learn risk management skills to avoid losing your money. Audacity Capital will help you learn how to boost your return and hire you, depending on your skill level.
If you want to diversify your trading, then exotic pairs should be your best bet. The forex piar offers more opportunities to traders, allowing them to make more profits.
Forex exotic pairs are very volatile. But as much as there are many risks involved, it offers traders endless opportunities of making huge amounts of profits.
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