Navigating emerging currency markets

 

Your guide to informed international trading

 

As international payments become increasingly commonplace, the world of foreign exchange is expanding rapidly. While there are major currencies that individuals and businesses deal with quite regularly - think exchanging pounds for euros or dollars - making a payment to or from one of the less traded emerging market or 'exotic' currencies can be much more complex to manage.

For businesses and individuals involved in trading or investing in emerging markets, access to exotic currencies offers a gateway to potentially high returns. However, this also comes with unique challenges that require a nuanced approach.  As such, there is an increasing need for specialised service providers to provide the entry routes, insights, tools, and expert strategies needed to navigate these markets effectively.   

Here, we break down the intricacies of exotic currencies and currency exchange to provide you with the knowledge to make informed decisions, while managing the associated risks when trading internationally. It's important to note that while exotic currencies can offer significant opportunities, they are also subject to high volatility and potential losses. Therefore, a well-informed and cautious approach is essential.

What are exotic currencies? 

 

Exotic currencies are the currencies of smaller or emerging economies that are not widely traded in global markets. Because they are characterised by lower liquidity and higher volatility, they can offer opportunities to traders and investors. Unfortunately, these opportunities also come with associated risks that are essential to be aware of as part of a considered strategy. 

While often less familiar than 'major' currencies such as the dollar or euro, exotic currencies allow greater access to dynamic markets influenced by higher levels of uncertainty from prevailing economic, political, and social factors.

This increased volatility and reduced liquidity, driven by local market conditions and/or government controls can create opportunities for strategic investments. However, exotic currencies are simply not as readily available as the major and minor global currencies. This means that businesses and individuals with interests in these markets must consider additional complexities, like higher margins on exchange rates and the need for a robust financial supply chain that will support their requirements.

Popular exotic currencies

 

Each one of these represents its distinct economic environment and, along with that, varying trading prospects. Staying informed about these currencies is crucial for international trade, as factors that affect exotic currencies are distinctly different from those of major currencies. Along with less liquidity, exotic currencies often have higher volatility due to the fragile nature of the associated country's economy. 

For example, a major currency's value will often depend on its economy's overall health and interest rate differentials. In contrast, exotic currencies are much more susceptible to changes in the political landscape, like political instability, government policies and geopolitical events. Economic factors like inflation and commodity prices can also have a more pronounced impact.

Why trade exotic currencies?

 

Trading in exotic currencies gives traders the agility to diversify their portfolios. Still, their volatility can be a double-edged sword, with the potential for high rewards coming at a higher risk.

Another  aspect of these currencies is that exotic currency markets are often less efficient, which can mean there is more potential for pricing discrepancies. 

Exotic currencies can also provide growth opportunities within emerging economies and benefit long-term investment strategies, but again, it is crucial to consider the associated risks fully. 

How to trade exotic currencies

 

A nuanced understanding of the impact of local and global events, combined with a strategic approach, is vital when trading exotic currencies.

 

Navigating the volatility of exotic currencies

 

The volatility of exotic currencies can be influenced by several factors. Lower trading volumes often mean larger price swings and unpredictable behaviour, making sudden fluctuations an increased risk. Many emerging markets grapple with economic instability—think inflation, political unrest, and ever-changing commodity prices—which can significantly impact currency values.

 

With sophisticated risk management tools and expert insights tailored to these often unpredictable markets, Monerycorp can guide you through navigating volatilities for more empowered and proactive decision-making. We equip our clients with strategies such as forward contracts and limit orders to hedge against adverse movements and safeguard investments from sudden fluctuations. Our market analytics and real-time data insights help you stay ahead of potential risks so that you can confidently engage with exotic currencies with the necessary support and resources. While these tools provide valuable support, it's important to remember that trading in exotic currencies involves significant risks and may not be appropriate for all investors.

Competitive exchange rates

 

The importance of competitive exchange rates cannot be overstated when trading exotic currencies. Because exotic currencies are often characterised by wider spreads and less liquidity, even the slightest variation in exchange rates can completely change the bottom line. By accessing competitive rates, businesses and individuals can ensure they get the most value for their transactions, which is crucial along with effective risk management. 

 

International payments with exotic currencies 

 

International payments in exotic currencies can provide a competitive advantage in our globalised economy. To fully leverage this advantage, traders must have a nuanced understanding of the factors influencing exchange rates.

 

Exchange rates

 

Exchange rates play a crucial role when it comes to international payments in exotic currencies, which are often less liquid and traded less frequently. We offer real-time market data and analytics, empowering clients with information about current exchange rates and market trends and allowing traders to execute transactions when conditions are most favourable. Our team of experts conducts in-depth market analysis to understand both the macroeconomic and geopolitical influences so that the times of trade can be optimised.  We offer tools and resources to help you understand and manage your exposure and risk tolerance.

 

Fee management

 

With a transparent fee structure, clients can clearly understand transaction and conversion fees before executing trades. We can minimise these costs wherever possible by leveraging our global banking relationships and transaction capabilities. Our comprehensive approach to fee management also includes tools to track and evaluate costs in real-time so that our clients always understand the market movement to guide their strategy.

 

Risk mitigation

 

Moneycorp’s robust risk management tools help our clients to mitigate the impact of adverse currency movements, including forward contracts and currency options. By locking in exchange rates for future transactions, you can proactively navigate the uncertainty of fluctuating markets. Our expert team also provides tailored currency risk assessments that analyse exposure and specific strategies to mitigate potential losses. While these assessments offer valuable insights and support, it's important to remember that all investments carry inherent risks, and past performance is not indicative of future results. 

 

Operational efficiencies 

 

In a competitive marketplace, traders must stay agile and respond quickly, which is why operational efficiencies are crucial. Using innovative technology, you can streamline the payment process with solutions such as API integration to reduce manual entry errors and accelerate payment processing times, enabling businesses to react swiftly to market demands. Our bulk payment services simplify multiple transactions, reducing administrative burdens and freeing up time for traders so they can confidently respond to opportunities .

Why choose Moneycorp?

 

Moneycorp is a foreign exchange and payments specialist,    distinguished by its commitment to resilience, innovation, and client-centric solutions offering access to over 120 currencies, more than 30 of which are available for online trading, and allowing payments to over 190 countries.

Our experts will help you navigate the complexity of exotic currency exchange fees to ensure you have a clear understanding of the costs associated with each transaction. Our commitment to competitive pricing aims to provide you with optimal value while trading exotic currencies, helping you stay informed about your financial choices. 

Our team of specialists analyse market trends, providing insights to help mitigate potential pitfalls and prepare you for any trading scenario. At the same time, our platform offers real-time updates on currency pairs and market conditions, empowering you to act quickly and strategically. 

Below are a few of examples of exotic currency on offer with a Moneycorp online account.

• Norwegian Krone
• Polish Zloty
• Czech Koruna
• Hungarian Forint
• Turkish Lira
• Singaporean Dollar
• Hong Kong Dollar
• Thai Baht
• South African Rand 

We have also recently expanded our selection of exotic currencies to provide the following: 

• Albanian Lek
• Brunei Dollar
• Belarusian Ruble
• South Korean Won
• Liberian Dollar
• Mauritanian Ouguiya
• Mozambican Metical
• Seychelles Rupee
• Sao Tome & Principe Dobra
• Tahitian Franc 

These currencies are only payable and must be traded over the phone via one of our currency specialists, and with a minimum payment of £5,000. For more information on exotic currencies, please contact one of our dedicated team members today.