Foreign exchange

Last Look A contested practice in FX trading where a liquidity provider retains the right to accept or reject a trade after seeing a client's order.

Leaning Against the Wind A central-bank strategy to moderate exchange-rate volatility without reversing the underlying trend, using measured interventions to smooth momentum.

Leaning Against the Wind in Exchange Rate Policy Understand the strategy of making small, frequent interventions to resist short-run exchange rate trend moves rather than defending a hard fixed level.

Leverage Leverage in FX is the ratio of notional exposure to capital deployed. A trader using 50:1 leverage controls $50 of currency for every $1 of margin deposited. High leverage amplifies both gains and losses, making forex uniquely risky among retail assets.

Leverage Ratio (Forex) The ratio of notional position size to account equity in currency trading, which determines margin requirements and drawdown exposure.

Liability-Side Sterilization of FX Intervention How central banks neutralize the liquidity created by foreign currency purchases through domestic bill issuance or repo operations.

Long-Dated FX Forward Risks and Pricing Why multi-year currency forwards carry higher credit risk, basis risk, and pricing premiums than short-dated contracts.

Lot Size A lot size is the quantity of a currency being traded in a single FX transaction. Lots come in standard (100,000 units), mini (10,000), and micro (1,000) sizes, allowing traders to scale position size to their capital and risk tolerance.

Louvre Accord The 1987 G7 agreement to stabilise dollar exchange rates after the sharp decline following the Plaza Accord.

Louvre Accord: Exchange Rate Stabilization After the Plaza The 1987 Louvre Accord was a G7 agreement to stop the dollar's slide and stabilize exchange rates with reference ranges. Here's why it eventually failed.

Major Currency Pair Major currency pairs are the eight most heavily traded FX pairs, all involving the US dollar and one other large-economy currency. They account for roughly 85% of all FX volume and have the tightest spreads and deepest liquidity in the market.

Major Currency Pairs EUR/USD, GBP/USD, and other highly liquid forex pairs—characteristics and trading drivers.

Managed Float A managed float (also called dirty float) is an exchange-rate system in which the currency floats freely most of the time but the central bank intervenes occasionally to smooth volatility or defend a preferred level.

Managed Float Exchange Rate Regime How a managed float exchange rate regime allows currencies to fluctuate while central banks intervene to control volatility and defend key levels.

Managed Float Intervention Triggers: When Central Banks Step In Central banks intervene in managed float regimes when exchange rates breach volatility thresholds, threaten price stability, or signal reserve depletion.

Managed Float vs Free Float Exchange Rate Managed float allows occasional central bank intervention; free float lets supply and demand set currency value. Learn how each regime affects volatility and policy control.

Managed Float vs Free Float: Key Differences A managed float vs free float difference determines whether a central bank intervenes to smooth currency moves or lets markets set rates purely by supply and demand.

Margin Margin in FX is the deposit required from a trader to hold a leveraged position. It is not a fee or a loan; it is a fraction of the notional exposure held in a collateral account. When losses consume the margin, the broker forces liquidation.

Margin Call (Forex) Forced liquidation trigger when forex margin falls below the minimum required by the broker.

Margin Level The ratio of account equity to used margin, expressed as a percentage; triggers margin calls and forced liquidation when it falls below broker thresholds.

Margin vs Notional Value in Forex Trading Understand margin vs notional value in forex: the deposit required versus the full contract value controlled in leveraged currency trading.

Market Depth in FX The layered structure of bid and ask orders at multiple price levels in the foreign exchange market, visible via Level II quotes.

Market Orders vs Limit Orders in Forex: Execution Mechanics Understand how market order vs limit order forex execution works. Market orders fill immediately at available liquidity; limit orders wait for price levels, risking missed fills during fast moves.

Mexican Peso The MXN's role as a highly liquid emerging-market currency and proxy for Latin American risk sentiment.

Micro Lot A micro lot is 1,000 units of the base currency in an FX trade. It produces $0.10 of profit or loss per pip for most currency pairs and is the smallest lot size available, ideal for beginners and very small accounts.

Mini Lot A mini lot is 10,000 units of the base currency in an FX trade. It produces $1 of profit or loss per pip for most currency pairs and is the most popular size for retail traders with small to medium accounts.

Minimum Foreign Reserves Needed to Defend a Currency Learn the rule-of-thumb benchmarks—months of import cover and short-term debt ratios—that determine whether a country holds enough foreign reserves to support its exchange rate.

Minor Currency Pair Minor currency pairs, also called cross-rates, are currency pairs that do not involve the US dollar. They include pairs like EUR/GBP, AUD/JPY, and GBP/CHF. While less liquid than majors, minors trade actively and serve key cross-border transactions.

Minor Currency Pairs Currency pairs formed from crosses between major currencies that exclude the US dollar, characterised by moderate liquidity and stable trading conditions.

Momentum vs Mean Reversion in Currency Pairs Currency pairs exhibit either momentum (trending) or mean reversion (reverting to fair value); structural factors like central bank policy and capital flows determine which regime dominates.

Multipolar Reserve Currency System Explained Understand a multipolar reserve currency system where multiple currencies share dominant status instead of one nation's currency ruling global finance.

Mundell-Fleming Model Open-economy extension of IS-LM showing how fiscal and monetary policy effectiveness depends on the exchange rate regime.

NDF Settlement and Fixing Date: How Non-Deliverable Forwards Are Settled On the fixing date of a non-deliverable forward, the reference rate is locked and the cash difference is paid. No currency is delivered—only the P&L.

NDF vs Deliverable Forward: Key Differences Non-deliverable forwards (NDFs) and deliverable forwards differ in settlement mechanics, credit structure, and which currencies require each type.

New Zealand Dollar The freely floating currency of New Zealand, closely linked to commodity cycles and popular in carry trade strategies.

Nominal Effective Exchange Rate A trade-weighted index measuring a currency's value against a basket of trading partners' currencies.

Non-Deliverable Forward A non-deliverable forward (NDF) is a currency forward contract that settles in cash rather than through physical delivery of the currencies. NDFs are used to hedge exposure to currencies that are restricted or illiquid, particularly in emerging markets.

Non-Deliverable Forward (NDF) Explained A non-deliverable forward (NDF) hedges exposure to restricted or illiquid currencies where physical delivery is prohibited, settling in cash instead.

Non-Deliverable Forward (NDF): How FX Settlement Works Without Currency Delivery Non-deliverable forward (NDF) contracts settle currency trades in USD rather than exchanging the underlying restricted currency.

Non-Deliverable Forwards and Restricted Currency Pairs Non-deliverable forwards (NDFs) allow offshore trading of restricted currencies like Indian rupee and Brazilian real; settlement occurs in USD rather than physical delivery.

Norwegian Krone The currency of Norway, a petrocurrency sensitive to oil prices and steered through one of the world's largest sovereign wealth funds.

Nostro and Vostro Accounts Correspondent banking accounts held in foreign currencies to enable cross-border FX settlements and trades.

NZD/USD Kiwi New Zealand dollar to US dollar currency pair; commodity currency pair driven by dairy prices, interest rates, and agricultural cycles.

One-Cancels-the-Other Orders in Forex Explained How OCO orders link two pending orders so that filling one automatically cancels the other, common use cases, and execution mechanics in forex markets.

Onshore vs Offshore Yuan: CNY and CNH China's capital controls split the yuan into two distinct exchange rates—CNY (onshore, heavily managed) and CNH (offshore, market-driven)—that often trade at different prices.

Optimal Currency Area Mundell's framework for identifying which regions or countries benefit most from sharing a single currency, based on labour mobility, symmetry of shocks, and integration.

Optimal Currency Area Criteria: A Practical Checklist Optimal currency area criteria evaluate whether countries should join a monetary union. Checklist of measurable conditions for shared currency success.

Optimum Currency Area Mundell's theory defining the conditions under which a group of countries benefits from sharing one currency.

Original Sin in Emerging Market Debt The structural problem where developing economies cannot borrow internationally in their own currency, creating exchange-rate risk and financial instability.

Partial Fill in Forex Orders Explained A partial fill in forex occurs when your order is executed in pieces across different counterparties because no single liquidity provider can fill the entire size.

Participating Forward as an FX Hedge A participating forward fx hedge locks in a worst-case currency rate while retaining partial upside—cheaper than options for many corporates.

Pegged Exchange Rate as an Inflation Anchor How fixing to a low-inflation anchor currency can import price stability, and the conditions under which that strategy succeeds or fails.

Petrocurrency Currencies of major oil exporters whose exchange rates move tightly with crude oil prices and export revenues.

Petrocurrency vs Petrodollar: Key Differences Understand the distinction between petrocurrencies (currencies of major oil exporters) and the petrodollar system (oil priced in dollars globally).

Petrodollar System The mechanism by which oil-exporting nations recycle dollar export surpluses into US Treasury holdings, sustaining dollar demand.

Pip A pip — percentage in point — is the smallest unit of price movement in a currency quote. For most pairs, one pip is 0.0001; for pairs involving the Japanese yen, one pip is 0.01. Pips measure profit and loss in FX trading.

Pip and Pipette The standardised minimum price increments in forex: a pip is one ten-thousandth of most currency pairs; a pipette is one tenth of a pip.

Pip Value (Forex) Minimum price movement in currency pairs converted to dollar impact per standard lot traded.

Pip Value Calculation in Forex How to calculate pip value in forex for different currency pairs and lot sizes; essential for position sizing and risk management in currency trading.

Pip Value When Your Account Currency Differs From the Pair How to calculate the monetary value of a pip when your account is in a different currency than the trading pair.