How to Trade Exotic Currency Pairs

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 no’t support trading with the specific exotic pair? Changing broker to open a position is no’t a good idea, but there is a way to trade some pairs on the brokers that don’t 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:

  1. You can’t set stop-loss and take-profit level like with a single currency pair position. You depend on two positions combined and the majority of the Forex brokers does no’t support combined stop-losses or take-profits on two orders.
  2. 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 no’t trade exotics too often and you like your current broker, then you probably would no’t 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 no’t something you need. In this case I’ would recommend changing your broker.

2 thoughts on “How to Trade Exotic Currency Pairs

  1. Anonymous

    What broker wouldn’t let you set a Stop order on 2 different pairs you are trading simultaneously? Or let you take profit from 2 different pairs? Any broker with that type of policy is only interested in trading against you and taking your money. FXDD doesn’t have these restrictions.

    Reply
  2. enivid

    I was talking about a conditional order, where the second order is closed automatically if the first one is closed out by the stop-loss or take-profit.

    Reply

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