Most traders are aware of the major currency pairs such as the GBP/USD, EUR/USD, GBP/JPY, USD/JPY and EUR/GBP pairs, but if you dig a little deeper you will find that there are over 100 different pairs you can trade. These less well-known pairs are often called ‘exotic pairs’. However you will generally find that almost all forex traders avoid trading them, for two main reasons.

First of all many of these lesser pairs have very wide spreads, which makes intraday trading practically impossible. It’s perfectly reasonable to trade some of the major pairs that have spreads of just 2 or 3 pips. Indeed even a spread of 5 pips is generally acceptable because many of these pairs trade in a trading range well in excess of 100 pips during any given day. 

However when you go to your forex broker and look at some of the exotic pairs you will find that most of these pairs have ridiculously high spreads. To give you a random example, the USD/CZK (the US dollar against the Czech Koruna) currently has a daily trading range of 192 points according to the Average True Range indicator. That’s a decent range, but the trouble is that this pair has a spread of 30 points with my preferred broker (and my broker has some of the tightest spreads going, it’s probably even higher with other brokers). 

So it’s very difficult to trade this pair on an intraday basis if you need the price to move 30 points in your favour just to break even. It’s a similar story with the other pairs as well. In fact some pairs have spreads of around 300 points, which is enough to put anyone off trading. 

Another reason why most people avoid trading the exotic pairs is simply because even on a longer-term basis, they do not feel that they conform as well to technical analysis. This is a natural assumption to make and it’s a reasonable argument because the simple fact is that most traders from all around the world are watching the same pairs, ie the major pairs. 

So therefore it stands to reason that these major pairs will be far more likely to react to key fibonacci levels, for instance, or obvious areas of support and resistance because so many people are watching and trading the same price patterns. The exotic pairs, however, are only traded by a handful of people, so are therefore far less likely to move around these key levels. 

So to sum up, what I’m basically saying is that it’s simply not worth considering trading the exotic pairs. You can make more than enough pips with the major pairs, and they are far easier to trade because they have tighter spreads and they conform a lot better to technical analysis.