Best Exotic Currency Pairs to Trade

Trade the best exotic currency pairs with eToro as your online forex broker.

The U.S. dollar is one of the primary currencies traded in the forex market and allows traders to trade against other major currencies like EUR, GBP and JPY. These dominant currency pairs are derived from some of the world’s biggest economies and have significant liquidity. However, some traders prefer to trade exotic currency pairs that involve the major currencies paired with currencies from emerging or smaller economies.

Want to know more about these uncommon currency pairs? Keep reading to learn all about exotic currency pairs, how they differ from other pairs in the market and the most traded exotic currency pairs.

Exotic currency pairs involve currencies from developing countries or emerging markets and are less commonly traded than pairs involving currencies from developed countries. They tend to trade with higher bid-ask spreads and volatility, making them riskier but potentially more profitable. Factors influencing these pairs include political and economic developments, commodity prices, interest rates, market sentiment and interventions from central banks or governments. 

Trading exotic currency pairs requires extensive research, knowledge of forex fundamentals and technicals, as well as proper risk management and discipline. These factors make them difficult to trade for beginners or low-risk traders. Experienced traders seeking greater diversity and opportunities in the forex market may find them more suitable.

Classification of currency pairs based on popularity and liquidity include major, minor and exotic currency pairs.

• Major: Major currency pairs include the U.S. dollar and one of the other seven most traded currencies in the world: Euro, Japanese yen, British pound, Swiss franc, Canadian dollar, Australian dollar and New Zealand dollar. These form the most liquid and widely traded currency pairs in the foreign exchange market, accounting for about 85% of the total trading volume. Some examples of major currency pairs are USD/JPY, EUR/USD, GBP/USD and USD/CHF.

• Minor: They involve two major currencies other than the U.S. dollar. They are also referred to as cross-currency pairs or crosses. Although they are less liquid and more volatile compared to major currency pairs, they still hold a considerable share of the forex market. Minor currency pairs include EUR/GBP, EUR/JPY, GBP/JPY and AUD/NZD.

• Exotic: Exotic currency pairs consist of one major currency and one currency from a developing or emerging market. These pairs are known to be the most volatile and least liquid in the forex market due to low trading volume, high spreads, political instability, economic fluctuations and central bank interventions. Some exotic currency pairs include USD/ZAR, EUR/TRY, USD/MXN and USD/THB.

If you are looking to trade exotic currency pairs, you might want to know which ones are the most popular and widely traded. 

The U.S. dollar/South African rand pair is highly active in the forex market. The South African rand is influenced by various factors, including commodity prices, politics, fiscal policies, trade balance, inflation and risk sentiment. This pair is known for its high volatility and significant price fluctuations due to low liquidity and high spreads of the Rand. It follows global trends and reacts to changes in investor risk appetite, as well as events in other emerging markets.

The Euro/Turkish lira pair is another popular exotic currency pair. The Turkish lira is influenced by several factors, including economic growth, inflation and political stability. The EUR/TRY pair is remarkable for its high volatility from interventions by the Turkish central bank and government and also influence from geopolitical events and trade disputes.

The US Dollar/Mexican peso pair is a popular and liquid currency pair influenced by the trade balance, oil prices, inflation, interest rates, fiscal policies, political developments and risk sentiment. It typically moves with the trends and fluctuations of the US dollar and reacts to changes in U.S.-Mexico relations.

The US Dollar/Thai baht pair is a widely traded exotic currency combination in the forex market, with the Thai baht heavily reliant on tourism and exports. The pair is known for its low volatility and stability from the Thai central bank’s tight grip on the exchange rate. It follows U.S. Dollar trends and reacts to global risk appetite and demand for emerging market assets.

The U.S. dollar/Singapore dollar pair is known for its high liquidity and low volatility. Singapore’s strong economy and various factors can influence the Singapore dollar, which usually follows the trends of the U.S. dollar while reacting to global economic conditions and trade flows.

The U.S. dollar/Norwegian krone is a popular exotic forex pair due to Norway’s natural resources and the krone’s sensitivity to oil prices, economic growth and risk sentiment. The pair is known for its high volatility and large price swings.

The U.S. dollar/Hong Kong dollar offers high liquidity and low volatility. Hong Kong’s fixed exchange rate regime for the Hong Kong dollar adds to its stability. Its value is affected by factors like economic growth, inflation, trade balance, foreign exchange reserves, political stability and U.S.-China relations.

Trading exotic currency pairs can be rewarding but also risky. Some of the risks involved include:

• Low liquidity: Exotic currency pairs have lower liquidity, wider bid-ask spreads, higher transaction costs, lower price transparency and higher slippage from fewer market participants and less trading volume.
• High volatility: Exotic currency pairs have more significant price fluctuations, less predictability and higher risk exposure than major and minor pairs. They also require higher stop-loss orders and have a lower risk-reward ratio.
• Political instability: Exotic currency pairs are more susceptible to political events and developments in their regions, leading to sudden policy changes, unrest and intervention.

Trading exotic forex pairs can offer some benefits for traders who are looking for new opportunities and challenges in the currency market. 

• Higher volatility: Traders who can handle the risk have the potential to make more profit with exotic pairs because of their tendency to have larger price movements compared to major or minor pairs.
• Diversification: Adding exotic currency pairs to a trading portfolio can diversify and expose it to economic and political factors impacting currencies from emerging markets.
• Lower competition: Exotic currency pairs have fewer traders, making them less susceptible to market sentiment and manipulation.

To trade exotic currency pairs, choose a forex broker that offers this option and consider its fees, leverage and margin requirements. Also, look for good customer service, trading platforms, research tools and educational resources. Check out Benzinga’s comparison table of top brokers for exotic forex trading.

Venturing into trading exotic currency pairs can broaden the horizons of forex traders. With a clear understanding of the associated risks, you can explore new trading prospects and potentially increase your profits.