Trading The Exotic Currencies In The Foreign Exchange Market

There are a few currency pairs that are highly popular but there are some instruments that are less commonly traded. These are known as exotic currencies. When you trade in these currencies it is important that you trade with some caution.

The exotic currencies are paired with some of the major currencies and these are made available to trade on the exchange.

The liquidity should be considered

When you are trading on the exotic currencies on Bitcoin Trader, which is an algorithmic trading software, then make sure to check whether these are liquid. Since they are not traded popularly it could be possible that they do not have enough active traders trading on them. This is known as low liquidity which causes volatility in the prices. The combination of high volatility and low liquidity could let you grab some immediate gains but also lead to huge losses immediately. So this is something that you need to be careful about when trading the exotic currencies with real money.

The high cost of trading

There are costs that you need to incur when you trade on the Forex market. However, in the exotic currencies, it could happen then you may end up paying more to be able to trade on these currency pairs. The cost of trading in Forex futures market is known as the spread. If the average cost of spread is huge then the premium will be affected and this impacts your profits.

Benefits of trading the exotic currencies

It is important that you be careful when trading on the exotic currencies but that does not mean that you should avoid them. There are definitely some advantages of those who are trading in the exotic currencies and hold a long-term view.

The exotic currencies tend to have a defined trend. This is because of less information about these currencies to the public and it causes fewer changes when there is a bias in the market. Thus, when you see a lot of movement and volatility in the other major currencies there may not be a lot of volatility in the exotic currencies. These may be just following the set trend.

Also, the exotic currencies come with high rates of interest and this lets the traders add a yield return on to their futures position on the exotic currencies. This helps to remove some of the costs that you pay towards brokerage.