Exotic Currency

An exotic currency is a term used in the forex market to describe the currencies that are thinly traded.

The countries that own exotic currencies usually have less developed financial markets, less stable economies, and lower trading volumes.

Here are some of exotic currencies:

• Thai Baht (THB) — the currency of Thailand
• Indonesian Rupiah (IDR) — the currency of Indonesia
• South African Rand (ZAR) — the currency of South Africa
• Turkish Lira (TRY) — the currency of Turkey
• Brazilian Real (BRL) — the currency of Brazil
• Russian Ruble (RUB) — the currency of Russia
• Mexican Peso (MXN) — the currency of Mexico

Should you trade exotic currencies? What are some advantages?

1. Fewer market forces: exotic currencies usually have a lower correlation with other financial instruments, which can make them less affected by macroeconomics;
2. Portfolio diversification;
3. Greater returns: exotic pairs can be a lot more volatile than majors and minors, which can provide with a higher opportunity for profit.

On the contrary, what are some disadvantages?

1. High currency conversion costs: converting funds from a major currency to an exotic one can bring on additional fees and costs;
2. Less liquidity: it might be more complicated to enter and exit a trade at the desired price;
3. Limited information about market: performing a fundamental or technical analysis could be difficult since there isn't much information available on exotic currency pairings;
4. Political and economic instability: countries with exotic currencies are often prone to economic and political instability which negatively affects currency values;
5. Increased volatility.

In summary, it is not the best option to trade exotic currencies if you are a novice in trading. On the other hand, experienced traders who are looking for exposure to particular regions or countries or diversification may find that trading exotic currencies offers special opportunities.