Most of beginners at the Forex market are familiar with such term as a major or basic currency. It is widely used in Forex trade. However, there is also such type of currency as ‘exotic’. It is useful to be aware of such terms and understand what they mean.
An exotic currency is a currency with low liquidity and limited dealing. While they are much less popular on the market than major currencies, their role at the Forex should not be underestimated. If to learn how they act on the market, you can easily gain big profits.
All currencies at the market are dependable from each other, reflecting the dependence of the countries they belong to. Forex is the environment where different countries develop financial relations with each other. One currency is turned to another by banks, international holdings, brokers and traders. This process is repeated billions of time per day, creating a powerful money turnover on the virtual market. And all currencies, major or exotic, take part in this process. Each currency is constantly changing in price, becomes more or less liquid, and each such move creates opportunities to earn on their exchange.
The major currency on the Forex market is US dollar, as well as European euro, British pound, Swiss franc and Japanese yen. These currencies are mostly used for exchange deals. Typical Forex broker supports various currency pairs, where one or both currencies belong to major range. About 70% of the market turnover is made of major currencies. The range of exotic currencies includes the New Zealand dollar, the Australian dollar, the French franc and many others. Besides this, the market operates with minor currencies that are something middle between major and exotic currencies, but often considered as exotic.
Of course dealing with exotic currencies has its own peculiarities. These currencies cause less marketing interest, they are not so actively bought and sold as major currencies. Low interest at the Forex market means that the currency has higher exchange rates that imply higher trading risks. A big advantage of trading on such currencies is a chance to earn big profits. Usually it is a favourite type of trading of experienced professionals who study the market perfectly and can operate with exotic currencies correctly.
When opening a Forex account at a brokerage firm, make sure it supports currency pairs with exotic currencies.
Currency crossing is mistakenly considered as an easy process. However, it required deep knowledge and specific skills. You should understand the exchange market mechanisms to manage your funds properly. Deals with high leverage allow increasing profits from currency crossing in many times, using the funds of the broker. For instance, if you have 500 USD on your deposit, some Forex brokers may lend you a sum of up to 100,000 USD for your trading deals. But do not forget that you are risking broker’s money.
Forex allows exchanging currencies very quickly due to its high liquidity. If you own some amount of specific currency pair that is going to lose in price, you can sell it before it reaches the cheapest mark and get maximal profit in this situation. For predicting the behaviour of currencies correctly, you need to have analytic skills and proper knowledge.
Forex market allows getting profit in both cases: when the currency price rises and when it goes down. If you trade at the stock market, usually you can get profit only from deals when chares price rises. In the Forex environment you can move currencies in both sale and buy directions that give much more opportunities to earn on such deals. A trader on the Forex market can benefit from any situation. You just need to react correctly on different changes and be able to predict the result of your actions. Various Forex software tools may help you to track the statistics and trade properly. Today’s market offers highly functional and reliable software for these purposes.
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