if a currency is called 'exotic,' it doesn't mean it is poorly valued. It has more to do with its popularity among traders, not how developed a nation is.
Great examples are the Kuwaiti Dinar (KWD)
and Saudi Arabian Riyal (SAR)
. Both currencies are considered high-value currencies but are still on the list of exotics.
By the way, did you know that both CNH
refer to the Chinese Yuan Renminbi? Since the China Forex market is controlled and not fully opened yet, China created an offshore version of its currency. So, while the yuan is called CNH in the offshore market, the mainland China market still refers to CNY. Remember:
not all of the existing currency pairs are traded in the Forex market. Imagine if you had to pair each of 180 currencies up with another. Yep, this is the impressed number of currencies recognized by the United Nations!
Are there some differences when trading exotic pairs, in comparison with the major and cross pairs?
Sure, buddy! There are two main things you need to know before trading exotic pairs:
- They are more volatil than the Majors.
- They are less liquid than the majors.
Lemme explain. When we say that the market is more volatile
, price movements are more frequent and, perhaps, more dramatic. Can high volatility provide higher profits? Possibly. And higher risks? Inevitably!
As for low liquidity
, it most often happens because of a lack of market participants who would take the other side of your order. For the same reason of low liquidity, exotic currency pairs are usually way more sensitive to economic and geopolitical events. Note:
low liquidity makes exotic pairs more expensive to trade because they have wider bid-ask spreads.
We recommend that you go with the most popular exotic pairs to ensure greater liquidity.