Major vs. Exotic Forex Currencies: What You Need to Know
Introduction to Forex Currencies
In forex trading, currencies are the “lifeblood” of the market. They offer traders with the most fulfilling means of generating wealth thanks to their rapid fluctuations and almost infinite liquidity in the world of investing.
However, there is a difference among currencies as they can be classified into major and exotic ones – each having its own distinctive features that influence traders differently.
What is Forex Trading?
Before we can get into details about forex currencies, we need an overview of what forex trading is.
The foreign exchange market (forex) is a global decentralized marketplace where participants trade currencies between themselves. All currency trading on forex takes place between two parties who profit from fluctuations in exchange rates.
Forex trading involves speculating on how strong or weak one currency is compared to another. Traders aim to buy when they expect the value of a given currency will go up and sell it when they believe the coin will go down in value, thus earning profits from price shifts.
Major Forex Currencies and Their Characteristics
Major currencies, also known as majors, are the most actively traded in the forex market. They are supported by countries with very stable economies and political systems.
The major forex currencies include:
- United States Dollar (USD).
- Euro (EUR).
- Japanese Yen (JPY).
- British Pound Sterling (GBP).
- Swiss Franc (CHF).
- Canadian Dollar (CAD).
- Australian Dollar (AUD).
- New Zealand Dollar (NZD).
The main feature of the major currencies is their high liquidity which indicates they are bought and sold easily without any significant price changes. This draws in high numbers of trade and thus tight bid-ask spreads and fast pricing processes. Also, they possess lower volatility levels compared to exotic currencies, which makes them less risky for traders.
Exotic Forex Currencies and Their Characteristics
Exotic currencies, on the other hand, belong to those that have come up in developing countries or emerging economies. In comparison to major currencies, these amounts of cash tend to be less liquid and are not traded as widely.
Some examples of exotic currencies include:
- Mexican Peso (MXN).
- Turkish Lira (TRY).
- South African Rand (ZAR).
- Russian Ruble (RUB).
- Brazilian Real (BRL).
- Thai Baht (THB).
In addition to higher volatility levels, exotic currencies tend to be more volatile due to their countries’ economic and political uncertainties. Even though this volatility gives room for drastic profits, it also brings about greater chances of loss. Due to low liquidity in these markets, exotic currencies might have wider bid-ask spreads making it tough to enter into or step out efficiently from trades.
Differences Between Major and Exotic Forex Currencies
The primary differences between major and exotic forex currencies lie in their liquidity, volatility, and trading volumes.
Here's a breakdown of these differences:
- Liquidity: High liquidity is an important characteristic of major currencies. They can easily be bought or sold without significantly affecting their price while exotic currencies are often more illiquid as a result larger bid-offer spreads and increased transaction costs.
- Volatility: Exotic currencies have greater volatility than the major currencies. Larger profits can be made due to this volatility but also there exists a risk of high losses.
- Trading volumes: The vast majority of trades in the forex market are dominated by major currencies usually associated with trading volume. Lower transaction amounts are another factor that contributes to their decreased liquidity as well as increased volatility.
- Market impact: Since they have higher liquidity and volume than other currency assets these major currencies are less vulnerable to manipulation or drastic moves in prices resulting from one person’s trade alone. For this reason, it could be said that exotic ones are more likely subjected to this kind of market change.
- Economic and political stability: Stable economy and politics underpin major currencies whereas emerging economies experiencing substantial levels of economic and political instability relate to exotic ones.
Top Platforms for Trading Currencies
Grand Capital
Grand Capital's trading platform offers several features that can significantly benefit you when trading currencies. One of the standout benefits is its access to Trading Platform 4 (Platform 4) and Trading Platform 5 (Platform 5), which is widely known for its powerful charting tools and automated trading capabilities. This allows you to run Expert Advisors (EAs) for automated trading, helping you execute strategies even when you're not actively monitoring the market.
Grand Capital also provides tight spreads and fast execution, which are crucial for forex traders looking to capitalize on small price movements.
With over 50 currency pairs available, you have access to a wide range of markets, including major, minor, and exotic pairs, giving you plenty of options to diversify your trades.
In addition, Grand Capital supports both desktop and mobile trading, allowing you to manage your trades from anywhere, ensuring that you stay connected to the markets and can act on opportunities as they arise.
All these features combine to make Grand Capital a solid choice for forex traders seeking flexibility, fast execution, and comprehensive trading tools.
If you want to start trading, create an account on Grand Capital and use deposit code DEPOSIT60 to get a 60% bonus on deposits from 100 USD up to 20,000 USD.
Trading Platform 5 (Platform 5)
Trading Platform 5 (Platform 5) is the more advanced version of Platform 4, offering additional features like more timeframes, technical indicators, and an extended range of order types.
Platform 5 is ideal if you want to trade other asset classes alongside currencies, such as stocks or commodities. It also supports economic calendar integration, helping you stay updated on global events that impact currency markets.
If you’re looking for a platform with more sophisticated tools and a broader asset range, Platform 5 is worth exploring.
cTrader
cTrader is another excellent forex trading platform, highly regarded for its user-friendly interface and advanced charting features.
It offers direct market access (DMA), meaning your trades are executed with minimal intervention from brokers, providing a more transparent trading experience. cTrader's clean layout, combined with features like advanced order types and in-depth chart analysis, makes it perfect for traders who prioritize ease of use and accuracy.
If you prefer a platform that's easy to navigate without sacrificing powerful trading tools, cTrader is a great option.
Thinkorswim by TD Ameritrade (known as Schwab)
Thinkorswim is a robust platform offered by TD Ameritrade that provides a comprehensive suite of tools for trading not only currencies but also stocks, options, and futures.
It’s ideal for traders who want access to a full range of assets and sophisticated research tools.
With advanced charting, customizable indicators, and a vast array of analytical resources, Thinkorswim is an all-in-one platform.
Its depth of research tools and educational resources make it an excellent choice if you're a serious trader looking to diversify your portfolio.
SaxoTraderGO by Saxo Bank
SaxoTraderGO is the web-based trading platform from Saxo Bank, offering a sleek and intuitive interface with access to over 180 currency pairs.
It also supports multi-asset trading, making it a versatile platform if you’re looking to invest in other markets like stocks or commodities. With a variety of advanced charting tools, market analysis, and trading insights, SaxoTraderGO provides a well-rounded experience for both new and experienced traders.
If you value a modern platform with access to a wide range of global markets, SaxoTraderGO is a top contender.
Conclusion and Final Thoughts
When it comes to trading, understanding the difference between the major and exotic currencies in forex is very important to be able to choose wisely on which trades to make and how to manage risk.
Traders who want lower-risk opportunities would prefer major currencies because they are more liquid, less volatile, more stable, etc.
On the other hand, exotic currencies present higher levels of volatility and potential for making larger profits but are also much riskier because they have less liquidity and can be affected by economic or political instabilities.
At the end of the day, your decision on whether you should trade in only one type of currency or another depends on several things including how much you can afford to lose with each transaction, what you want to achieve with your trades and finally what kind of an investor you would like to be.
To successfully navigate its waters, a trader needs to carry out extensive research about it as well as know how it functions.
If you want to get right into trading currencies, start trading with Grand Capital and use the promo code DEPOSIT60 on your next deposit to get a 60% bonus. The bonus works for deposits from 100 USD up to 20,000 USD. Here’s how it works:
If you deposit 10,000 USD, we will add another 6,000 USD to your account so you can trade with more money. You can withdraw profits that you earn on your trades. No questions asked!
