Is it worthwhile trading Exotic pairs?

Hi everyone, i’m moving on to learn trading Exotic pairs. What are the considerations? Would using correlation coefficient of Major pairs vs Exotic pairs be accurate in Trend determination? Would appreciate it, if anyone could contribute to this thread.

Below is a list of exotic currency pairs:
EUR/TRY (Euro/Turkish Lira)
USD/TRY (US Dollar/Turkish Lira)
USD/SEK (US Dollar/Swedish Krona)
USD/NOK (US Dollar/Norwegian Krone)
USD/DKK (US Dollar/Danish Krone)
USD/ZAR (US Dollar/South African Rand)
USD/HKD (US Dollar/Hong Kong Dollar)
USD/SGD (US Dollar/Singapore Dollar)
USD/THB (US Dollar/Thailand Baht)
USD/MXN (US Dollar/Mexican Peso)

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if you trade it you get large spread and if you hold over night you get too much commission that eating up almost all of your profit

Aside from the wide spreads, it wouldn’t make sense to hold short-term. And if that’s the case, then you really need to monitor macro and geopolitics for each country.

I toyed around with this, actually. Yes, the spreads are huge, but when you consider the spread as a % of the price, and as a function of the pair’s volatility, they are much more reasonable than the base figure suggests.

The USDJPY, for example, has something like an 80 pip daily range with a 3 pip spread. That makes the spread 3.75% of the daily range.The USDMXN, on the other hand, has daily range of about 1,070 pips with a 37 pip spread. That makes the spread 3.45% of the daily range.*

*All numbers pulled off of Google search results rather than personal knowledge.

So as long as you manage your position size to reflect the much larger stop and profit targets you will need to set, there is no reason that you can’t make money from these currency pairs.

That is not to say that there will not be unique challenges arising from the lower volumes and smaller economies involved. But I would not be at all surprised if there were advantages to be found as well.

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Thanks a lot! Great idea.

I have 2 more question for you.
For example, USDZAR (ZAR is the South African Rand) Business working hours Timezone for Africa is the same as UK. Thus, GMT0800HR to GMT2000HR, i logically assume that period would be when the spread for USDZAR to be tightest. My question is considering spread as a % of the price. In your opinion, What is the factor for that % during Non Business working hours from GMT2200HR to GMT0700HR, assuming that period is when the spread would be widest, how many x % would be a reasonable assumption? How many times of %?

What advantages would that be? Do you mind further explain?

Your assumption regarding USDZAR spreads/liquidity seems reasonable. But the best thing to do is simply to open up your trading platform and spot-check the spread at the various times you might be trading. That way you will see the spreads that your broker will be charging you on your account rather than a more generic (and thus less useful) answer.

Spreads can vary hugely between brokers. I left my old broker (XM.co.uk) in no small part because their spreads on the GBPCAD were 2-3 times higher than average. So plan your trades in accordance with the conditions that will apply to you.

I would be speculating, since it’s not a road that I ended up taking, but I would anticipate more organic ‘old school’ price action. Not only do the high spreads scare away the retail investors, but they also kill a lot of the high frequency algos that rely on making multiple trades per second to net a fraction of a pip.

So price is likely to be driven far more by actual people, many of them who have no direct profit motive (such as companies that do business in multiple jurisdictions). Some trading styles (such as those who trade heavily on fundamentals) may find this kind of trading environment suits them.

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Very enlightening. Thanks a lot man. Appreciate your answer very much.

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As I remember from the school of pipsology, exotics can be great to carry trade. If they do not trend and stay at around the same price or move just slightly (risk-averse if I got it right), you can earn money from swaps because of the interest rate differential. I’m currently experimenting with a demo account. EUR/TRY doesn’t work because it is trending upwards as seen on the daily chart, but you have to short in order to receive positive swaps. Currently, I’m trying to carry trade USD/RUB, because it seems to be ranging. Of course, I’ll try other pairs later too.

That zar i lost so much money on it. I just hate this pair and do not trade on it anymore .

Yes. It is worth to trade exotic pairs if you could gain knowledge and skills. Every pair has its own characteristics. Through research and backtest you have to find out. But these pairs have some disadvantages as others mentioned above.

I trade exotic pairs. The way I view, it, I trade a chart rather than a preferred currency pair. I look at Price Action and trend, if I see that on a Daily/Weekly/Monthly chart then I will look to trade. I once had a great run on USD/SGD as it put in such a beautiful, sustained trend. Yes the spreads are higher but if it’s moving, it’s moving, and the profits can comfortably outweigh the cost of the higher spread.

A chart is a chart.

ST

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Yes it could be worth if you have necessary skills and knowledge about those pairs. What I found that every pair has its own specific characteristics. Sometimes they may behave the same but they have some uniqueness. Most traders fail because they use same strategy for many pairs. As a result after sometime it doesn’t work. Choose your desired pair and research on it.

Trading exotic pairs can be worth it if one knows the pair in question and the economical and geopolitical circumstances around it very well. Just picking such a pair at random and trading it, on the other hand, may carry significant risk.

The problem I have found trading exotics is the cost. I have tried spreadbetting these things but the same observation would apply to other forms of access.

Trading long-term, I usually find that the cost of placing the stop-loss in the usual placing according to the TA of my regular set-up means that the position size will be way bigger than it should be as a % of my account capital. This is a nuisance when the set-up is otherwise tempting - and there are 2 solutions. The one I adopt is to walk away and look for an equally good opportunity tomorrow amongst the majors. The other is very bad and is to accept a over-sized position and take on extra risk for the sake of getting into this trade. Very unwise.

Due to the wide spreads, it usually only makes sense to trades exotics with a medium to long-term time horizon. But this requires using a small position size and limiting leverage to no more than 3:1 (if not lower).

I agree. Scalping exotic pairs is not exactly something that I would do.

There are too many variables trading exotic pairs. Make a comparison chart with major pairs. Spreads, volume, volatility, etc. If the odds are with you on exotics then go for it. If not, stick with the majors. But regardless of pairs, for me anyways, money management goes along way to be successful

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I’ve been trading USDMXN.
It trends quite a lot, but too erratic at certain times of the day.
I’m now trying to mark those periods so I can avoid them.

I find these can be profitable, but I also find that you need to hold them for a much longer period of time for a decent return, adding to the cost.

For example, USDMXN will be in a nice profit so you think Ok, here we go, just to look again and find it shot back down into the red. This can go on for days and days. For this reason I have taken all exotic pairs off my watchlist so that I can better focus on the majors.

Good luck, I hope you find success with these.