Most important fundamentals Forex investors will need to master is differentiating between non-exotic currency pairs and exotic currency pairs.
The US dollar (USD) is far and away the world’s most traded currency. It has a huge trading volume and acts as the world’s reserve currency. The US economy is strong and stable as well, and that means that a lot of other currencies – especially those from other large economies – are heavily traded against the US as well.
On the flip side of things, though, the Turkish lira doesn’t get anywhere near as much attention in the Forex world as the US dollar does.b The volume isn’t as high and the “stability” for this currency isn’t as reliable as the USD is.
The best exotic forex pairs to trade in 2022 are:
- USD/THB
- JPY/NOK
- EUR/TRY
- GBP/ZAR
- AUD/MXN
- USD/VND
If you are going to trade exotic currency pairs, you need to be sure that you are focused on the best exotic Forex pair to trade and not just picking a handful of random pairs that feel a little bit “off-the-wall”.
What is the Best Exotic Forex Pair to Trade?
If you are serious about trading exotic currency pairs in the Forex world you want to be sure that the pairs you are going after have a couple of things in common.
For one thing, you want to make sure that these pairs have a little bit of volatility to them. That’s where a lot of the value in trading exotics come from, after all. In fact, if you look at the most volatile forex pairs
, minors and exotics are the only pairs you’ll see.
Secondly, you need to confirm that the exotic pairs you are after have the potential to move in the direction that you want them to. Volatility is good if it is directional. Random volatility, though, can be trouble.
Third, you need to be able to easily identify the trends that these exotic pairs are following.
If the charts feel like you are trying to read tea leaves in the middle of a pitch black room the odds are pretty good you’re going to have a tough time making money with exotic pairs.
If, on the other hand, the trends and charts are relatively easy to identify (regardless of where those trends are moving) you’ll know better how to position yourself to make money with these pairs.
At the end of the day, in 2022, these are the best exotic Forex pair to trade options on the market today:
- USD/THB
- JPY/NOK
- EUR/TRY
- GBP/ZAR
- AUD/MXN
- USD/VND
Why are Exotic Forex Pairs Higher Risk to Trade?
Now that we’ve highlighted the best exotic Forex pairs to trade in 2022, it’s time to highlight a few of the risks Forex investors are going to have to confront if they decide to prioritize these kinds trading strategies.
Exotic Forex Pairs are Much More Volatile
For starters, exotic Forex currency pairs are a lot more volatile than “stable” currency pairs.
The US dollar, for example, is going to see a lot of volume on a day-to-day basis – but that volume is going to be pretty consistent, pretty predictable, and it isn’t going to force the price of the US dollar to bounce all over the place.
Using our example from a little earlier, the Turkish lira on the other hand, is going to see a lot less volume on a day-to-day basis – but it isn’t at all unreasonable for one day to see significantly higher trading volume that bounces the value of the Turkish lira all over the place.
The thing that makes exotic pairs so interesting to trade (their volatility) is also what makes them so risky!
Unpredictable Trends
Another risk that exotic pair traders have to be comfortable with is the unpredictability of the trendlines these pairs have, especially compared to the rest of the Forex market.
It’s not at all unusual for an exotic currency pair to move as much as 1000 to 2000 pips and then just stop on a dime seemingly out of nowhere – and then to start back up again, moving in a totally different direction, with no real notification or preempting whatsoever. This makes exotics a tough choice of forex pairs for swing traders.
The unpredictability also goes hand-in-hand with the volatility of these exotic currency pairs.
It’s part and parcel of trading these kinds of currencies, and while it’s part of the fun and excitement of exotics it can also be pretty stressful.
How to Choose an Exotic Pair to Trade
If you are going to trade exotic currency pairs you have to be sure that you are leveraging Forex strategies designed with these kinds of pairs – and their risks – in mind.
Trend Trading
Trend trading is always a popular way to trade more exotic currency pairs.
This approach has you identifying a specific trendline for an exotic pair and then choosing to go long or short on it, depending on the trend that you’ve identified.
As we highlighted earlier, though, trends for exotic pairs can bounce all over the place – and that makes this a little bit of a risky proposition.
Breakout Trading
Breakout trading on exotic currency pairs involves a pretty significant investment in technical as well as fundamental analysis.
You need to be able to recognize historical resistance or support for these exotic pairs, but then you also have to identify when these pairs are poised to breakthrough that resistance or support.
This is a bit of a time intensive approach to trading Forex it can be wildly profitable. You have to be careful for false breakouts, though – those can tank your profits in a hurry.
Range Trading
Range trading is another of the preferred strategies for dealing with exotic currency pairs.
This approach has investors looking to pull profits from the ups and downs within a certain price range for exotic pairs, playing the “middle” between resistance and support with day trader like activity.
Another active approach to investing, Forex bots can help you better identify these ranges and when to get in as well as when to get out. But you really need your finger on the button (so to speak) to use this trading strategy reliably.
In Summary – What Are The Best Exotic Forex Pairs?
In conclusion, the best exotic currency pairs are going to be the ones that give you the opportunity to profit from their volatility while still providing some level of predictability in their overall movement.
The best way to find these kinds of pairs, and to find the best way to trade them, is going to be by leveraging a number of different Forex trading strategies – and making sure that you have the discipline to stick with those strategies no matter how crazy the market gets.
Do you trade exotic forex pairs? Let me know in the comments down below.
