Exotic currency pairs are those that include currencies from emerging or less developed countries, such as the Brazilian real, Indian rupee, or South African rand. Trading in exotic currency pairs can offer unique opportunities for forex traders, but also comes with additional risks. Here are some factors to consider when trading in exotic currency pairs:
- Volatility: Exotic currency pairs can be more volatile than major currency pairs, which can create higher trading risks.
- Liquidity: Exotic currency pairs can be less liquid than major currency pairs, which can make it more difficult to enter and exit trades at favorable prices.
- Spreads: Spreads for exotic currency pairs can be wider than those for major currency pairs, which can impact trading costs.
- Political risk: Exotic currency pairs can be more vulnerable to political risk, including policy changes and instability.
