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[Luke101]

Hello, just want to know if any of you guys trade with exotic currencies. Why is the spread so high with these countries? And, why is it considered a risk trading with these currencies? What broker allowes trade of exotic currency.

[overgrowth]

Hi Luke,

I steer well clear of the exotics for two reasons:

1) Spreads are restrictive to any serious profit taking (these currencies seem to me to be suitable only for very short term trading - because of...see my point 2).

2) Volume of trading is low which lends to volatility (e.g. it's very difficult to keep out of the market when news occurs because you can never be 100% sure that you've got the right low down on the fundamentals c.f. US non-farm payrolls which everyone knows about). Severe volatility is a really bad thing and will blow your stops to kingdom come in a matter of seconds.

If you're into spread betting which is handy if you live in the UK because it's classified as gambling hence non-taxable (sorry it doesn't help you too much!) then IG Index will cater for a good range of exotics.

[shaklfree]

Some exotics are useful...like the Gbp/Chf or Gbp/Jpy...from what I've seen, they have the largest daily ranges...yes, very volatile. Works good with breakout strategies (like a breakout of the Hi/Low of the last hour of Asia's session).

There's a good article about this subject in Investopedia at
http://www.investopedia.com/articles...rencyCross.asp

Ben

[Nonpiker]

Originally Posted by Luke101

Hello, just want to know if any of you guys trade with exotic currencies. Why is the spread so high with these countries? And, why is it considered a risk trading with these currencies? What broker allowes trade of exotic currency.

Higher volatility + low liquidity = greater risk associated with making a market = higher spread.

Countries whose currencies are labeled as exotic tend to be more apt to experience periods of economic, social, and political instability. Therefore, there is greater risk in trading them. It is really as simple as that.

I really would not label GBPCHF or GBPJPY as exotics. They have wider ranges becaue of the sterling component.

[Orion602]

Originally Posted by Luke101

Hello, just want to know if any of you guys trade with exotic currencies. Why is the spread so high with these countries? And, why is it considered a risk trading with these currencies? What broker allowes trade of exotic currency.

yes they have higher spreads. BUT not as high as it seems.

just some comparision from o*anda now

eurusd 100k units : 1 pip=10$ spread 1.5pips
eurczk 100k units : 1 pip=0.41$ spread 250pips (1 tick is something like 20 pips)
eurpln 100k units : 1pip=3.01$ spread 35pips
usdchf 100k units : 1pip=7.58$ spread 3pips
usdmxn 100k units : 1pip=0.95$ spread 250 (interest on short 12.53 $/24hr)

still. not good for scalping:-) but some may be good for carry trades nzdjpy,usdmxn...

saxobank has many exotic crosses