Trading with the exotic currency pairs is less popular than with the major currencies pairs such as EUR/USD and USD/JPY, but the mechanics of trading is the same. Both technical and fundamental analysis works the same for exotics and the same strategies that work for the major pairs can generate signals for the exotic currency pairs. But what to do when your broker does not support trading with the specific exotic pair? Changing broker to open a position is not a good idea, but there is a way to trade some pairs on the brokers that dont have them.
The exotic currency pairs are also often called cross pairs, because in reality they are often nothing more than the derivatives from the major currency pairs. That opens a possibility to substitute such pairs with majors. For example, you want to sell NZD/JPY, but your broker has no such pair, though it offers NZD/USD and USD/JPY. So, all you need to do is to sell NZD/USD and NZD/JPY, the resulting positions will give you the same combined profit as the NZD/JPY short position would give you. Another example: if you want to buy EUR/AUD, but your broker only offers EUR/USD and AUD/USD then you just need to buy EUR/USD and sell AUD/USD. The general rule is the following: to go long on cross X/Y — buy major with X in the first position or sell one with X in the second and sell major with Y in the first position or buy it if Y is in the second position. To go short — do the same but vice versa.
Unfortunately this technique has two important disadvantages:
- You cant set
stop-lossand take-profitlevel like with a single currency pair position. You depend on two positions combined and the majority of the Forex brokers does not support combined stop-lossesor take-profitson two orders.
- Position size uncertainty makes it difficult manage your risks in such trades, because the base currency for those positions can be different.
If you do not trade exotics too often and you like your current broker, then you probably would not want to change your broker to get more currency pairs. But if you open such positions more than once a month then this technique is not something you need. In this case I would recommend changing your broker.