Why trade exotics?

Some analysts contend exotic currencies tend to trend better than the majors because their economies are often narrowly focused, or even dependent on one specific industry or investment theme.

GFT Forex and Oanda.com currently include exotic currency trading on their retail trading platforms.

“Exotic currency pairs provide traders with the ability to take advantage of trends that can be established by large money taking positions in these less-liquid currencies,” says Paul Jamgotch, dealing desk manager at GFT. “Exotics are also attractive to traders who keep their eyes on the fundamental factors that can affect these smaller financial markets. Also, it gives retail traders a way to speculate in the economies of countries that don’t offer easy access to other trading vehicles, such as bonds or stocks.”

Diversification is another argument in favor of expanding into the exotic arena.
“Having exposure to just the major pairs really narrows the scope of a trader’s portfolio,” says Richard Lee, currency strategist at FXCM. “Portfolio returns in emerging markets are also outpacing major-currency investments.”

While FXCM currently does not provide access to emerging market currencies on their retail platform, they do provide research in the Hong Kong and Singapore dollars, as well as the Chinese yuan.

“Additional instruments are good because they offer diversification,” says Richard Olsen, co-founder of Oanda.com. “Anyone trading any market wants to diversify.”
Oanda gradually began adding exotic cross rates to its retail platform starting in 2006 and Olsen says it has been met with “an astonishing amount of interest.” Oanda has a fairly wide offering of exotic currency crosses, including crosses with the euro dollar vs. emerging market currencies.

(For a list of Oanda’s current exotic pairs offerings see:
https://fxtrade.oanda.com/spreads/all_spreads.shtml.)