Feeling Like Taking On More Forex Risk? Trade Emerging Market Currencies
An emerging market (EM) currency is the money of a nation that is considered to be transitioning from underdeveloped to developed.
These types of economies experience an extended period of robust growth in GDP. This growth is a consequence of the improvement in national manufacturing as well as technological progress.
Due to this, substantial levels of foreign capital investment floods these nations in a short timespan. And thus, these emerging market currencies tend to exhibit dramatic exchange rate fluctuations.
Currently, five nations are more or less considered the emerging market's darlings. Collectively, they are known as 'BRICS' (Brazil, Russia, India, China, and South Africa). But, as of recent Brazil has fallen a bit out of grace. It's political scandals, and an increase in unemployment has made traders drop the BRL altogether.
Emerging Currencies Trading Tips
Traders don’t have to be limited to trading BRICS alone when it comes to EM Fx. There are over 200 nations on earth, and most of them are still developing so there are plenty of other EM currencies to choose from. So, to help you get started here are some tips when trading Forex with emerging market currencies.
- Emerging market currencies present risks from higher volatility than major pairs, and therefore it is essential to determine the appropriate position size for trading them. For example, the BRL is the 19th most commonly traded currency in the world. Brazil's rise to global economic prominence is mainly due to a robust exports area.
According to the CIA Factbook, Brazil is the 27th highest exporter. Its exports are valued at US$190.1 billion annually, with their biggest ones being iron ore, soybeans, coffee, and automobiles. However, the nation is going through corruption scandals and a rise in unemployment. So the yin comes with yang.
Follow these tips, and your portfolio will look better than before.