But first, what exactly are exotic currencies and exotic pairs? They are made up of a major currency such us USD or GBP or Euro, paired with the currency of an emerging economy, or a strong but rather small economy. Examples of emerging economies are Kenya, Nigeria, Thailand, Nepal and other African and Asian countries; good examples of strong but small economies are Hong Kong or Singapore or European countries outside of the 'euro zone' such as Norway or Denmark.
Some of the main features of exotic currencies are:
- They are not liquid
- Too low pip value
- They lack market depth comparing to the major currencies
- They move way too much - often considered as both an advantage and a flaw of exotic currencies.
- High volatility - again, considered as an advantage and a disadvantage.
When you decide to trade on the exotic pair, you need to possess a good knowledge of the chosen country's economy and politics. High fluctuations are often experienced during periods of political insecurity, therefore that kind of knowledge is an important factor.
To make most of your Forex trading, you need a certain strategy before you decide to trade on exotics. One of the best strategies to choose (and possibly make some profit) is a long term trade. Do not consider going short on exotics due to quite high leverage they often require. That means you are raising up your trading fees, but on the other hand - in case your trade is successful - you can make really good profit from it. You must know that high volatility and frequent price movements not only carry some risk, but also enable large profit potential.
Regarding trading fees, its worth to compare few different brokers and decide, which one suits you better. CMC Markets offers competitive minimum spreads and margin rates on exotic pairs.
When going long on exotics, you also have to accept a high risk level of losing your money.
Overall, maybe that doesn't sound encouraging, yet there are some traders who trade on exotics successfully. Just like Forex trading itself, exotic currencies are not suitable for everyone - particularly not for beginners or traders with a limited trading capital.
Recently Forex trading gets more and more popular in Lithuania, but somehow majority of Lithuanian traders seem to choose foreign brokers that are based in other European jurisdictions rather than Lithuania. Therefore it is not easy for a local brokers to emerge.
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