In the foreign exchange (FX) world, exotic pairs are made up of one major currency (i.e. USD, EUR, JPY) with the currency of an emergent economy, such as Brazil, Hong Kong, Singapore, etc.
Moreover, the exotic pairs in the currency market have a pretty fair relationship, given that both sides maintain the perspective of ‘exotic’ to one another. However, as pretty as these exotic pairs may look, currency traders do not bet on them much and as a result they are not traded as heavily as the majors.
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That is why the transaction costs of trading exotic pairs are actually higher and more expensive when weighed against just major currency pairs. For example, the spreads of these exotic pairs can be twice or sometimes even three times larger than major currency pairs.
This begs the question, is it worth it to trade exotics? Ultimately, the aforementioned limitations prevent more widespread trading of exotic currency pairs. Having this in mind, many forget about trading exotic currency pairs on a daily basis, though there is still tangible interest amongst investors.