Should You Be Trading Exotic Currencies?

Photo: Jeff Patterson

This question is particularly important for anyone who insists on trading anything but the major currency pairs. For those of you who are unsure as to exactly what constitutes exotic currencies, they are often the ones you never hear about. No one talks about them because they tend to move a lot more, can be more susceptible to change and most likely scares many traders. However, I have a secret for you…exotic currencies shouldn’t scare you. On the contrary, exotic currencies, or exotics tend offer some of the best opportunities in foreign exchange (FX).

Don’t believe me? Well, here are three reasons you should consider adding an exotic currency pair to your watchlist:

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1) They are “technically obedient”. What does this mean? This means that if there is a breakout from support or resistance, it’s for real, and you can use the next level of support or resistance for a very high probability target. This regularly is not the case with the majors, which are held hostage by a number of other market forces.

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2) They MOVE. As I have alluded to the above, exotic currencies tend to move a lot, which scares people. However, nobody has ever made profits with a stagnated currency pair. For example, if the Turkish lira gives you a trade, it’s going to get down and Boogie. It’s not going to move 10 pips and then stop and reverse.

One important note to make, an exotic currency pair could move 2,000 pips and then stop, stone cold. Why? Because only a small number of banks trade these exotics, so once a move starts, it continues and rumbles along, and once it’s over, there isn’t any other trader out there to reverse it. This is why you get wildly savage trends.

3) Finally, trading exotics is FUN. Apart from the word exotic, which is sure to elicit some vision of a beach in Thailand or palm trees in some picturesque cove, exotic currencies help cut through the monotony of an otherwise moribund trade. As a corollary, trading should not be about excitement, however why not enjoy what you do, especially if this is your job, career, or in some cases life? Truthfully, it is much more fun to tell the cashier at the grocery store that you “trade the dong” than it is to say, “I trade forex.”