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Thin pairs: what order flow looks like when nobody is there

On a major like EURUSD, order flow is a river. On a pair like USDTRY, USDZAR, or USDMXN, it is a series of puddles.

In thin markets, a handful of orders dominate. Price moves in jumps rather than gliding. A one-minute chart can show a flat line for several minutes and then a ten-pip leap, because nobody quoted in between. Spreads are many times wider than on majors and can double without notice.

The strange part is that technical levels work differently. Support and resistance on thin pairs are not so much zones of accumulated orders as places where a few large participants happen to have orders. Break one and the price runs until it hits another cluster.

Scalpers who migrate from majors to exotics often underestimate three things:

- Overnight swap, which can be enormous in either direction
- Weekend gap risk, driven by political news
- Broker dealing practice, since many exotics are internalised and priced in-house

The extra movement is tempting. The extra cost is often larger than the extra movement.

For anyone trading an exotic with short targets, how large is the spread relative to the average one-minute range?

On thinly traded pairs, such as some exotics and less common crosses, price updates less often and moves in larger steps. A single order can move the price noticeably, and spreads are much wider than on majors. Tick charts show long gaps between updates, followed by sudden jumps. The depth of market, if available, shows smaller volumes at each level. Order flow in these pairs is irregular, with bursts of activity around local market hours and news, and long quiet periods otherwise. That makes them very different to trade from majors, where liquidity is deep and price moves in small, frequent steps through most of the trading day.

I tried USDZAR for a couple of months because the daily range looked so attractive compared with EURUSD, and the spread was the thing that eventually ended it. The average one-minute range was around 12 pips, but the typical spread was 25 to 30, and at the London open it often jumped to 60 without warning. For a target of eight pips, I was paying more than the target before the trade started.

The overnight swap was the other surprise. I held a short position across the rollover once, expecting a small credit, and was charged more than a dollar per micro lot, which on my size wiped out most of the day's profit.

What I'd suggest to anyone tempted is the check you mention at the end. Log the spread and the one-minute range for a full week, work out the ratio, and only trade the pair if the typical target is at least five times the spread. In my case the ratio was below 1, and the exercise saved me from a lot of expensive trades.