The forex market, or foreign currency exchange, is the financial market where traders buy and sell pairs of global currencies. You can learn more about forex pairs in the PDF attachment to this post.
The forex market is the world’s most actively traded market, with around $5 trillion in transactions taking place every single day. Approximately 80% of all forex trading revolves around the seven major currency pairs, yet there are many options outside of these major currencies for traders with the knowledge and experience to deal in exotics.
Core Capital Europe is part of Core Capital Advisors, of which Lenn Mayhew Lewis is director. Core Capital Europe has developed a proprietary trading platform for exotic currencies that facilitates trading at an institutional level, using state of the art algorithms to level the playing field.
In the world of foreign currency trading, currency pairs are divided into three main categories – major, cross-currency and exotic. Major currency pairs all contain US dollars on one side or the other and are the most frequently traded. Cross-currency pairs are those that contain other major currencies but not paired with the US dollar, such as a pairing of the euro and the British pound, or the Australian dollar and Japanese yen. Exotic currency pairs, on the other hand, are those that pair any one of the major global currencies with that of an emerging or economically small country, such as Singapore, Sweden, South Africa or Turkey.
Exotics Vs. Majors: Differences in Trading Strategies
Trading exotic currencies is a whole different ball game to trading major currencies. There are numerous factors which can affect the exotics market that hold little sway in the major currency markets, meaning investors need to have the right trading strategy and the right knowledge to be able to make successful trades. The market for major currencies is huge, so traders have a high likelihood of there being a buyer when they wish to sell and vice-versa. Exotic currencies are less liquid and have less activity, so are therefore a longer-term investment than the majors.
You can find a list of exotic currency pairs in the attached infographic.
Another difference between major and exotic currency trading is that exotic currencies are affected mush more significantly by political factors. While major political upheaval will have some effect on major currencies, it is usually minimal and short-term. Political instability in countries with currencies defined as exotic can and often does have a dramatic effect on the value of the currency, causing strong and rapid fluctuations in the market. Traders in exotics need to be much more aware of the economic, political and social factors within a currency’s nation to be able to make informed decisions about which way that currency’s value is likely to head.
In the short video attachment, you can learn more about using leveraging in forex trading.
Most Overlooked Currency Pairs
Pairings of the US dollar with the Mexican peso (MXN) and the South African rand (ZAR) are seeing major fluctuations at present due to political instability. The Mexican peso was enjoying an all-time high value against the US dollar before Donald Trump’s presidency, but threats of tariffs and other issues mean confidence in the peso today is low. New leadership in South Africa means the value of the rand could well be interesting in the months to come. Currencies in countries where the value of the currency is linked to one or more commodities can also fluctuate heavily depending on the state of the commodities markets. These include the New Zealand dollar, Australian dollar and Canadian dollar when paired with the US dollar.