Exotic Pairs – Capitalco.net

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Exotic Currency Pairs

What Are Exotic Pairs ?

Exotic currency pairs include one major currency alongside a currency from a developing or emerging market. For example, an exotic forex pair would be formed when an exotic currency, such as the Bulgarian Lev (BGN) or Hungarian forint (HUF), is paired with a major currency, such as the US dollar (USD) or euro (EUR).

Key Takeaways

✓ The exotic currency pairs on the forex market are the EUR/BGN, USD/BGN, EUR/TRY, USD/TRY, USD/MXN, USD/ZAR, USD/SGD and etc.
✓ Exotic currencies are usually synonymous with developing or emerging market countries and are often subject to partial or total exchange rate controls.
✓ Exotic currencies are less liquid than major pairs.

Understanding the Exotic Pairs

An exotic currency is a foreign exchange term for an emergin market currency. Exotic currencies are less liquid, volatile, and trade at low volumes. Exotic currency’ bid-ask spread is usually wider to compensate for the lack of liquidity.

Exotic currencies often move on changes in the political landscape. In times of political instability, an exotic currency depreciates at a rapid rate.

Factors that effect the Exotic Currencies

Exotic currencies generally have higher volatility due to the fragile nature of the associated country’s economy. Because of this, investors who wish to trade them will require higher margins in their brokerage accounts to allow for any significant adverse change in the rate of the currency.

The Bottom Line

An example, the price for the USD/BGN is 1.75, which means it costs BGN 1.75 to buy $1. If the rate moves up to 1.85, that means the dollar has increased in value because it now costs more BGN 1.85 to buy $1.