The majority of the Forex market’s trading volume is constituted by the major currency pairs. Major currency pairs are made up of currencies that come from the more developed countries. like the United States. However, exotic currency pairs involve currencies that come from developing countries too. Much more risk comes with trading exotic pairs of currencies and they have wider spreads, making it cost more to trade exotic currencies. Exotic ones are generally not recommended to beginners, due to the added risk. Now although there is some sense in this and they are better for traders and investors who have a lot of experience, trading exotic pairs of currencies can be very profitable for anyone.
You need to exploit the high price volatility that comes with exotic currencies. Even major currencies can be volatile, but exotic ones can be exceedingly volatile. The high volatility of exotic ones is not something to shy away from though. Exotic pairs of currencies tend to make quicker and larger movements than the majors, which is why you could make a lot of money, if you are willing to try and exploit this.
Much like with the majors but especially for the exotic ones, it is best to spot trends early on. Exotic currency pairs tend to run wildly when they are set in trends and go for quite a long time. If you can spot an exotic currency pair price trend early on, you will have a chance to make a lot of profit. Just like the more successful and professional traders and investors in the currency market would say; the trend is always your friend.
Although it is generally easier to analyze the charts of exotic pairs of currencies, as they print more clearly than the majors and they tend to move in trends, make sure that you set your charts up correctly and get the basics right. You still need to be careful and ensure that your exotic currency pair price charts are clear, in order for you to be able to analyze the price action of these types of currency pairs well.
Remember to take commodities into account, when trading exotic currencies, as these types of currencies tend to be affected by commodities a lot. Exotic pairs of currencies are generally correlated to commodities. The most popular commodities among exotic currencies, are gold and oil.
In conclusion, there are some things you must know before deciding to trade exotic currencies. Experience is important, but traders and investors need to: acknowledge the high price volatility of exotic ones, understand that trends are especially important when it comes to the exotic pairs of currencies, setup their charts well so that they are clear to analyze and take into account commodities. Exotic currencies do carry more risk and generally cost more to trade, due to the wider spreads. With some practice and experience though beforehand, you could start trading exotic currencies for real and make a lot of money. Just make sure that you find a good Forex broker that can offer you reasonable spreads on the exotic ones, as well as fast order filling – as with these types of currencies, you will also want fast order execution, because of the high volatility.