While the major currency pairs remain the workhorses of the forex market, there are also various opportunities for traders outside of the majors. Exotic forex pairs represent a mix of one of the eight major currencies and a developing or emerging economy’s currency.
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Exotic currency pairs offer traders the chance to profit from pairs that provide a blend of volatility, potential, and risk.
Best Exotic Forex Pairs to Trade at a Glance
- USD/ZAR (US dollar/South African rand): Whether this pair is a minor or exotic pair is debatable, however, given its popularity, we have decided to include it as one of the top exotic pairs.
- USD/MXN (US dollar/ Mexican peso): The Mexican peso has made strong gains over the last year or so due to the growing strength of its economy.
- EUR/TRY (Euro/Turkish lira): The euro vs the lira is another exotic pair that has, in the last few years, surged.
- EUR/ZAR (Euro/South African rand): The euro and South African rand is another good exotic pair to trade with a fair amount of volatility.
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What Are Exotic Forex Currency Pairs?
Exotic currency pairs include the currency of a developing economy as well as one of the eight major currencies. They tend to be less commonly traded due to less liquidity. As a result, they are generally less commonly available through forex brokers, although major ones will usually offer at least a few exotic pairs.
Exotic currency pairs are generally considered more difficult to trade. They are less commonly available, less liquid, and tend to have higher spreads. However, they can still be profitable, particularly in times of high volatility.
What Are the Best Exotic Currency Pairs to Trade?
Often, the traders best suited to capitalize on the opportunities to profit from exotic currencies are those based in regions where that currency is the base currency, as they better understand the intricacies of the economy. However, be aware that if you are interested in trading exotic currency pairs, they come with high risk and are usually associated with high spreads.
While trading exotic currency pairs is certainly risky, there is the potential for bigger gains due to price spikes. However, being in a position to catch them and profit consistently is another question. Here are some of the top exotic currency pairs to trade:
- USD/ZAR
- USD/MXN
- EUR/TRY
- EUR/ZAR
USD/ZAR (US Dollar/South African Rand)
For forex traders seeking high-risk, high-reward opportunities, the USD/ZAR pair presents a compelling proposition. This exotic currency pairing offers significant exposure to the volatility inherent in South Africa's evolving economy and its sensitivity to global market fluctuations. The potential for solid profits during periods of Rand depreciation beckons experienced traders, but this mix of potential gains and rapid price movements means you should have a comprehensive understanding of South African economic dynamics and a robust risk management strategy.
USD/MXN (US Dollar/Mexican Peso)
The USD/MXN’s offering of the potential for higher yields in the Mexican peso (MXN) and its intertwined economic fate with the United States present both long-term growth potential and short-term volatility. While the North American Free Trade Agreement serves as a stable foundation, oil price fluctuations and potential political shifts can introduce volatility to the pair. Trading the USD/MXN demands a keen understanding of both economies and the monetary policies of both central banks.
EUR/TRY (Euro/Turkish Lira)
For traders who thrive on volatility and understand the complexities of the European economy and Turkish political tremors, the EUR/TRY could be the exotic pair of choice. This pair amplifies risk and reward in equal measure, with the lira prone to sharp swings depending on the Eurozone's monetary policy, global market fluctuations, and Turkish political and economic issues.
Looking at the chart, you will notice that the lira has weakened significantly over the past few years as a result of soaring inflation, a budget hole, and questionable policies in the country. While savvy traders can capitalize on the TRY plunge with substantial gains, it can be difficult to navigate the wide spreads on the pair (a common theme for exotic pairs). In addition, traders should possess a deep understanding of Turkish economic data and political nuances.
EUR/ZAR (Euro/South African Rand)
The EUR/ZAR is an interesting pair to trade, pitting the Euro against the South African Rand. We have discussed the individual currencies in the previous pairs above, but put together, the pair provides traders with ample volatility, which can present significant profit opportunities. Again, traders in this pair will need to understand the economies and monetary policies of each country, as well as a strong understanding of the political landscapes.
