Globalization, increased availability of human resources, better exploitation of natural resources and technical developments are helping many Asian, European, South American and African nations in quick economic growth. This also offers an opportunity to traders/investors worldwide to profit from their economic growth. Studies have shown that emerging market funds tend offer better returns than local funds and local benchmarks. Currencies of emerging world economies are also becoming popular among forex traders, and the market is becoming increasingly liquid and profitable.
Some of the most popular emerging market currencies are Hong Kong Dollar (HKD), South African Rand (ZAR), Malaysian Ringgit (MYR), Singapore Dollar (SGD), Mexican Peso (MXN), Czech Koruna (CZK), Korean Won (KRW), Thai Baht (TBH) and Polish Zloty (PLN). Each of these currency pairs have different levels of liquidity, and risk to return ratios. There are usually far less liquid than G7 forex currencies but usually liquid enough to trade. Forex currency traders who seek diversification of their portfolio can allocate a small portion of their portfolio for trading these emerging market currencies.
Trading emerging market forex currencies do require good planning, sound decisions and better money management. Many emerging world economies (e.g.: China and India) have tight regulations for trading their currencies and often these currencies are traded only through interbank market or by institutional traders. Also exchange rate of currencies of many nations are tightly regulated by respective central banks are the prices are less-floating. Chance for Political crisis, policy changes and quick economic changes is very high with emerging world nations than developed nations, so similar effects are also expected in their currencies.
Many emerging market currencies are actively traded on different trading hours than G7 currencies, so the trader must have to adjust his/her trading timings; this is very important when a trader is trading both G7 currencies and emerging market currencies. Also not all forex trading brokers offers all emerging market currencies for trading, so choosing the right forex broker becomes necessary. Also check for the spread and other charges that the brokers charge for these minor currency pairs.
For trading these minor currency pairs, the trader should be good on fundamental and technical analysis. He/she must be aware of the fundamentals (GDP, growth, strengths and weaknesses) of the nation of which currency he/she is trading. In forex market, every country's currency exchange rate is linked to other countries currency and any economic or political change in one country can affect the price of another currency.
