Is it better to avoid Exotic currency pairs? Why?

Discussion in 'Forex' started by RobRoss, Feb 22, 2017.

Do you trade Exotic Currency Pairs?

  1. Yes

  2. No

Multiple votes are allowed.
  1. RobRoss


    Lately, I have been watching the market of exotic currencies which are not so commonly traded. Especially Turkish Lira, the Mexican Peso and the Brazilian Real. One of my friend said, you must avoid those pairs. That's what he learned from the experts. He could not explain it to me. Can anyone here explain that? Why exactly most people avoid these currencies?
  2. Tim Smith

    Tim Smith

    As the old saying goes : "If you have to ask...."

    I would have thought for any person with any experience in FX, the answer would be pretty darn obvious. They are not known as "exotic" for no reason.

    Here are two obvious ideas for starters :

    - Lower liquidity
    - More "complex" fundamentals

    Given that most people have a tough time being consistently successful trading the majors, why bother with the extra risk in the exotics !
  3. One person's "exotic" is another person's "vanilla"...

    As also mentioned by the previous poster, liquidity and/or volatility are the reasons people stay away from these.
  4. Trading exotic pair, might not all like with this pair might less popular if compared with major pair, and also spread sometime higher than major pair.
    Handle123 likes this.
  5. Handle123


    Some of the spreads are twice as wide as I would scalp.
    wwatson1 and beginner66 like this.
  6. Xela


    Most people avoid them because dealing-costs are huge, compared with the "majors" (and some people also feel their movements are less "predictable", too - and comparatively speaking more driven by fundamentals and less by technicals).

    If you're a real expert on the fundamentals of the Turkish economy, and confident that your knowledge and assessment of the subject is better than that of most of the expert institutional traders involved with it, then don't let any of that stop you from trading the TRY (for example), but if not, then it's probably a good idea to avoid it.
  7. comagnum


    I will trade some of the 'exotics' at times provided they have decent trade activity and reasonable spreads - some have tight spreads - some are horrible. Do know the avg spread over the time period you plan to trade (see Oanda link). The real risk on the exotics is if the counter party fails to pay, has not happened to me so far. I take smaller positions on the exotics because of this.
  8. truetype


    Not really, if you're dealing at institutional size in the most liquid 'exotics' such as Peso and Lira. But liquidity isn't consistent through the day. It's best to think of them as having a daily fixing, rather than being continuously liquid. Not a market for daytraders.
    Xela likes this.
  9. JackRab


    Those countries have bigger risks in the political spectrum, as well as a less stable economy. Which means more volatility in the currencies... but also less easy to follow a certain trading routine, since there will be more outliers.... like Russia or Turkey suddenly increasing their interest rate massively... or moneyflow problems... risk in defaults...
    Xela likes this.
  10. As JackRab says above, those currencies are affected both by the politics and the economic situation in those countries. That applies to all currencies, however, depending on where you live, on the languages you speak, etc. your access to educational information about the effect of said politics and economy on those currencies may not be as broad as, say, the information that is constantly supplied with about American or British economy and politics. Of course, if one is really interested, they could find the necessary information to educate themselves about Turkish economy and politics, but many people don't want to make that effort.
    #10     Feb 23, 2017
    Xela likes this.