Monday, October 1, 2012

Trading Exotic Currencies- Five Aspects To Know Prior to Trading

You can beat the average return if you trade forex judiciously. Major currencies like USD, GBP, EUR, JPY, CHF etc constitute the majority of the volume of currency trading. There are some pairs with one currency from the majors like above and the second currency in the pair is usually from developing countries from Asia, Africa, the Pacific and Middle East. These are called exotic currencies. Exotic pairs are considered to be riskier than the majors. They have higher spread making the trade expensive. They trade in thin market. But that doesn't mean that you can't trade such currencies. If you understand the risk you are taking, you can get excellent profits trading exotic pairs.

Exploit the High Volatility

If you are a trader, you can make the most of your fortune from the volatility. An average trader gets scared of volatility. But volatile market excites an experienced trader. Exotic currencies are very volatile. If you have a significant experience of trading the currencies, then exotic pairs will present you some opportunities which will give you a long runner. They tend to move quickly. They make bigger moves than the major currencies. If you are good at handling such moves, you can trade these currencies with ease and confidence.

Trend Is Your Best Friend

As a trader you will do a lot better if you trade with the trend. Big winners can easily be spotted if you develop the skills to spot the trend sooner. Exotic currencies move fiercely when they are set in a trend. Compared to majors, these currencies make one sided move for a long time. If you are willing to take the risk they posses, you will get excellent reward when a trend is set up. Spotting the trend comes to you when you have spent some time with the charts. So trading these pairs are definitely for the newbie.

Exotic Pairs Print Clear Charts

The charts of exotic currencies are very clear in terms of trend. Charts reveal the story easily. Exotic pairs don't get stuck in the consolidation area for too long. Get your basics with the chart in place and you are good to go with these currencies.

Trade Commodities Indirectly

Many of these pairs are correlated to commodities like gold and oil. Currencies of countries with large oil production of oil like Norway, Mexico, and Russia move in tandem. South African Rand is closely tied with gold as it is one of the major producers of gold. You can get exposure to these commodities with the help of exotic pairs.

Diversify Your Investment

In addition to these short term advantages, trading exotic pairs gives other benefits. It helps you spread the risk by adding one more financial asset to your portfolio. If you are overweight in developed countries, you can reduce your dependence by introducing the exotic pairs in your portfolio.

If you get scared when you are in drawdown; exotic currencies may not be your game. You should understand the risks involved in this play. The best way to start is to trade virtually till you get comfortable. If you go this way, you can print money at will.

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