How to Trade Exotics

If you are interested in trading the exotics, buying call or put options may be an excellent idea. The advantages of options trading probably outweigh the risks involved in spot trading. Nonetheless, I believe that the new trader should first gain experience in the spot FOREX arena before attempting options, or exotics. GFT FOREX, is a trailblazer in offering exotics to retail customers, but most other major brokers offer at least a few exotics. Notable are Gain Capital, and SaxoBank. FXPro, offers a large exotic palette for non-U.S.

traders. Visit websites for a list of currencies traded by each broker-dealer. I must repeat: be mindful of liquidity in exotics. If you think liquidity in the EURCHF is poor at 5:00 p.m. Eastern Standard Time, wait until you see the Thai Baht spreads! There is also the potential instability of these countries, causing their currencies to move suddenly and sharply. Requoting and ballooning spreads could be an issue, even for small traders. If you use an electronic communications network (ECN) broker instead of a market maker to trade exotics, be doubly cautious. Remember, an ECN must find an order to match yours and does not act as a counterparty to your trades. If you place a market order to buy, prices will rise until a seller is found. Hopefully, a rug merchant will need change to sell a rug to Aunt Martha and bail you out. Begin trading exotics in mini-lots of 10,000 to get a feel for liquidity and other potential execution issues. Seek out broker-dealers who advertise exotics. Most brokers can get access to just about any currency pairâ

By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2020. Content published with author's permission.

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