An exotic currency pair includes a major currency and the currency of a developing economy, such as Brazil.
Their volume is lower than minors and majors. As such, they have higher spreads.
Their volatility is typically higher than majors.
- EUR/TRY - Euro/Turkish lira
- USD/HKD - US dollar/Hong Kong dollar
- JPY/NOK - Japanese yen/Norwegian krone
Common volatile pairs
When it comes to an overall strategy for trading every pair, there isn’t an easy answer. You must build up as much knowledge about the currencies as you can and consider the political, economic and social factors that impact them.
It’s impossible to make a definitive list of the most volatile pairs, since volatility changes all the time. That said, there are some common and popular volatile pairs, including:
- AUD/JPY (Australian dollar/Japanese yen)
- NZD/JPY (New Zealand dollar/Japanese yen)
- AUD/USD (Australian dollar/US dollar)
- CAD/JPY (Canadian dollar/Japanese yen)
- AUD/GBP (Australian dollar/Pound sterling)
There are some things you need to know about these common volatile pairs.
All currencies with high volatility are more prone to slippage than currency pairs with low volatility.
Also, big news events like Brexit or trade wars can have a major impact on a currency’s volatility.
Data releases, data leaks or privacy breaches can have an impact too. For the more volatile pairs this can have an even bigger effect.
Traders can stay ahead of data releases by using an economic calendar.
As mentioned, you’ll want to keep an eye on a currency’s strength. Take the US dollar for example, and see how it’s been affected in recent times.
Be aware of your risk tolerance, skill and market/country knowledge when deciding if a volatile pair-based strategy is right for you.
A strategy centred on volatile pairings won’t be right for everyone, but for traders with enough experience they present an opportunity.