subject: The Exotic Currency Pairs - Are They Worth Trading? [print this page] A lot of forex traders only trade a small number of currency pairs. These are often the largest, most actively-traded pairs, often referred to as the major currency pairs. However there are over 120 different currency pairs you can trade. These smaller pairs are often called exotic pairs, but are they worth trading?
Well I would personally suggest that you stay well away from these exotic pairs. There are two reasons why I say that.
The first is simply because in my experience these pairs do not conform as well to technical analysis as some of the major pairs. This is hardly surprising because the reason why technical analysis works so well is because it is basically a display of human behaviour, with traders often entering trades at the same time around key support and resistance levels.
The major currency pairs are monitored by huge numbers of traders, banks and financial institutions all over the world, so price movements can often be predicted with some degree of confidence. However with the smaller currency pairs, there is very little interest in them, so therefore it is far more difficult to be confident about predicting where the price will move at any given time.
Another reason why these exotic pairs are harder to profit from is simply because most of them have very large spreads compared to the major pairs. Whereas the most actively traded pairs will have spreads of between 2 and 5 pips, some of the more obscure pairs will have a spread of anywhere between 30 and 300 pips.
Forex trading is hard enough at the best of times but when you need big price moves just to break even, it can be a daunting prospect. To demonstrate how hard it is to make money, I'm currently looking at the USD/MXN pair, ie the US dollar against the Mexican Peso. The US session is now well under way at the time of writing, and this pair has traded within a trading range of 161 points. Now with a spread of say 2-5 points, there would be plenty of opportunities to make money, but the spread for this pair is a massive 60 points, and sometimes as much as 100 points, so it's virtually impossible to trade this pair on a short-term basis.
So the point is that it simply isn't worth wasting any time looking at the exotic currency pairs. There are plenty of trading opportunities across the major currency pairs such as the GBP/USD, EUR/USD and USD/JPY pairs. Not only do these pairs have very tight spreads, but they also conform much better to technical analysis, making it a lot easier to make consistent profits.
by: James Woolley
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