Zooming in on the Advantages of Exotic Currency Pairs

Zooming in on the Advantages of Exotic Currency Pairs

While most traders have their focus set on major currency pairs like EUR/USD or GBP/USD, there's another realm of Forex trading, known as exotic trading pairs, ready to be leveraged.

For traders in Africa, leveraging exotic currency pairs has the potential to be quite profitable. Trading exotic currency pairs is also a good way to put your risk management strategy to the test, because even though they tend to be more volatile, this volatility can translate to greater profit for traders who can accurately analyse market movements.

What are exotic currency pairs?
Exotic trading pairs typically involve one major currency and one currency from a smaller or emerging economy. For example, for African traders using their local currencies as a base, exotic pairs can be:
• USD/NGN (United States Dollar/Nigerian Naira)
• EUR/KES (Euro/Kenyan Shilling)
• GBP/GHS (British Pound/Ghanaian Cedi).
• USD/ZAR (United States Dollar/South African Rand
• ...and many more

5 Big Advantages of Leveraging Exotic Currency Pairs

1. Diversify your portfolio
Trading exotic pairs allows you to diversify you trading portfolio beyond local markets. Since local currencies are often influenced by regional economic events, diversification into exotic pairs can mitigate risks associated with the specific activities in your national economy.

2. Make your regional knowledge work for you
Exotic pairs often treat traders to unique trading opportunities that are usually not as readily available in major currency pairs. Local economic events have an enormous impact on exotic pairs, so you’ll have the chance to capitalise on your knowledge and experience of your region’s economy.

3. Interest rate differentials and ‘swapping rates’
Exotic pairs often feature interest rate differentials between the two currencies. Traders can earn or pay interest based on the direction of their trades, potentially adding an extra income stream to their trading activities. This is called swapping rates.

4. An opportunity to play the long game
Exotic pairs can serve as long-term investment vehicles, allowing African traders to hold positions over longer periods. This approach allows you to capitalise on potential currency appreciation or depreciation against other global currencies.

5. Broaden your perspective on global markets
Trading in exotic pairs allows traders in Africa to consider global markets and international economic developments from a different point of view. This broader perspective can empower you to make informed decisions by considering a wider range of factors beyond local influences.