Forex Trading Library

Trading Exotic Currencies With

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Exotic currencies are defined as those currencies that are not widely used in international trade and in the context of the currency markets, the exotic group of currencies are those that fall outside of the classification of majors and minors. Some of the most commonly available exotic currencies are:

  • MXN – Mexican Peso
  • NOK – Norwegian Krone
  • SEK – Swedish Krona
  • ZAR – South African Rand
  • TRY – Turkish Lira
  • RUB – Russian Ruble

You could also add CNY and DKK to the list as well. The exotics are usually traded with USD or the EUR as the base currency, and in some cases with GBP and JPY as well.

Exotic currency trading can offer traders something different as compared to trading the regular majors or minors. To be able to effectively trade these exotic currencies, traders need to have a completely different approach to the markets in question.

Unlike the major currencies, exotic currencies are often prone to wider bid/ask spreads. However, that being said, in recent years the exotics have grown in popularity and more often than not, the spreads are quite competitive.

Characteristics of exotic currencies

The fundamental factors that influence currency rates of the majors or minors remain the same for exotic currencies as well. However, the deeper you dig, the more interesting it gets.

Firstly, it would be a mistake to club all the exotic currencies into the same group. You have the European exotics and the emerging market exotic currencies.

While the price movements in the European exotics are quite consistent, relatively speaking, the emerging market exotics have their own characteristics. Another difference from a monetary policy perspective is that the European exotics currently all have negative interest rates, compared to the emerging markets in Latin America and Asia where the interest rates are much higher.

Due to the evolution of monetary policy in a post-2008 crisis world, central banks of the currencies such as the NOK, SEK pretty much track the ECB’s monetary policy. Furthermore, the European exotics tend to be closely tied to the Euro area economic growth. Thus, when the ECB started its massive bond purchase program, the Swedish central bank also started a similar QE program. While the near-term fundamentals closely track that of the euro, trading the NOK or SEK against the US dollar makes for an attractive proposition.

On the other hand, the emerging market exotic currencies tend to be more volatile. It is not uncommon to see strong intraday price action in these currencies. They are quite sensitive to political imbalances and at times the respective central banks have a more freehanded approach. And of course, not to forget the interest rate differential.

Country Currency Interest Rate
Russia RUB 10.50%
Mexico MXN 4.25%
South Africa ZAR 7.00%
Turkey TRY 7.50%
Hungary HUF 0.90%
Sweden SEK -0.50%
Denmark DKK -0.50%

Factors that influence exotic currencies

  • Exotic currencies, especially from Latin America and Asia are prone to strong central bank interventions. For example, the CBR or Russian Central Bank, at the height of the EU/US sanctions toyed with interest rates before cutting them. At one point, rates were hiked by 650bps or 6.50%. This made the RUB very volatile
  • More recently, the Central Bank of Mexico hiked interest rates more than expected, leading the MXN to appreciate strongly
  • During the Turkish elections in 2015 and the political shakeup, the Turkish Lira was very volatile, moving close to 3% on a single day
  • Mind the swaps especially when you are short on the higher yielding currency. But when the fundamental and technical factors align, traders can look at making additional profits from trading the exotics

Here is a list of the exotic currencies that you can trade with and also the swap details.

Currency Swap Long Swap Short
USDMXN -19.62 5.61
USDNOK -4.57 0.15
USDSEK 0.12 -0.65
USDZAR -29.33 5.77
USDDKK -7.95 1.08
USDCNY -15.32 5.39
USDTRY -77.9 18


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