Exotics

Forex traders can trade seemingly any currency against one another, leading to hundreds of different combinations.

Exotics represent those currency pairs that are seldomly traded or involve currencies seldom used for global transactions.

Exotics differ from majors, which represent the most liquid pairs and widely traded. These include the EUR/USD, USD/JPY, GBP/USD, and USD/CHF.

Just because exotics are not as popular does not mean they do not comprise an important element of the FX ecosystem.

However, unlike their major counterparts, there are several clear disadvantages to trading exotics.

Should You Be Trading Exotics?

Exotics are typically associated with currencies from developing or emerging economies. Exotic currencies are generally considered illiquid, which is not surprising given the currencies used in this trading are much less popular or supported globally.

Additionally, these lack overall market depth, can trade in very low volumes, and as a result can be extraordinarily volatile.

Of course, there are many traders who prefer this type of volatility to majors, though exotics do not constitute a sizable proportion of overall FX volume in the retail space.

Unlike majors, which are a ubiquitous offering amongst retail forex brokers, exotics are much less commonly offered by these venues.

These pairs have very high levels of slippage, which further detracts from their popularity amongst retail traders.

Of course, there are thousands of different combinations of currencies that exist though its normal for brokers to include only pairs with a certain threshold of liquidity and popularity for clients.

Common examples of exotic currencies can include those in small African or Latin American countries, with little impact or exchange with major currencies.