Foreign exchange

Pipette The fifth decimal place in forex pricing, one-tenth of a pip, offered by some brokers for tighter price resolution.

Plaza Accord The Plaza Accord was a 1985 agreement by the G5 to jointly intervene in FX markets to weaken the US dollar, which had appreciated 50% in the early 1980s. It was the first and most successful coordinated currency intervention of the modern era.

Position Netting in Forex: How Opposite Trades Are Offset Position netting in forex aggregates opposing trades in the same pair into a single net exposure, reducing risk and margin requirements.

Positive vs Negative Swap Rates on Currency Pairs Why holding certain currency pairs overnight earns interest while others charge a fee; driven by the interest-rate differential between the two currencies.

Prerequisites for a Speculative Attack on a Currency Peg A successful speculative attack on a currency peg requires unsustainable reserve depletion, external imbalances, and coordinated selling that becomes self-fulfilling.

Price Improvement in Forex: How It Works When and why a forex broker or ECN executes orders at better rates than quoted, and why it happens more during high-liquidity sessions.

Purchasing Power Parity An economic theory stating that exchange rates should adjust so that identical baskets of goods cost the same in different currencies, in the long run.

Purchasing Power Parity (Forex) Theory that exchange rates converge to equalize purchasing power across currencies, linking long-run currency movements to inflation differentials.

Purchasing Power Parity and Exchange Rates Purchasing power parity exchange rate explained: the theory, absolute vs relative PPP, and why real markets deviate from PPP predictions persistently.

Quantitative Easing Intervention Central bank purchases of financial assets to lower interest rates and stimulate economic growth when conventional policy is exhausted.

Quanto FX Options Explained A quanto FX option fixes the exchange rate at which a foreign-currency payoff is converted, removing FX risk from an already foreign underlying.

Real Effective Exchange Rate The trade-weighted exchange rate adjusted for inflation differences, showing true price competitiveness between countries.

Real Effective Exchange Rate vs Nominal Exchange Rate Understand the difference between nominal exchange rates (market quotes) and real effective rates (inflation-adjusted and trade-weighted), and why each matters.

Real Exchange Rate The exchange rate adjusted for inflation differentials between countries, measuring the true purchasing power of one currency relative to another.

Real Exchange Rate vs Nominal Rate: Example A worked numeric example showing how inflation differentials between countries cause the real exchange rate to diverge from the nominal quoted rate.

Redenomination The replacement of one currency with another under a fixed conversion rate, most notably the shift to the euro in 2002, eliminating multiple national currencies.

Requote When a broker cannot fill an order at the requested price and offers an alternative rate instead, forcing the trader to accept or cancel.

Reserve Adequacy Metric Quantitative benchmarks used to assess whether a country's foreign exchange reserves are sufficient.

Reserve Adequacy Ratios for Defending a Fixed Exchange Rate How the Guidotti-Greenspan rule and IMF metrics assess whether a central bank has enough reserves to credibly defend a currency peg.

Reserve Currency and Safe-Haven Status: How They Relate Why reserve currency status and safe-haven demand coincide but are distinct concepts, with examples of currencies that are only one or both.

Reserve Currency Share Over History How the global share of foreign exchange reserves held in each major currency has shifted since Bretton Woods, illustrating the decades-long decline of sterling and rise of the dollar.

Reserve Currency Status The economic criteria—liquidity, convertibility, confidence—that a currency must meet to function as a global store of value.

Reserve Currency Status Explained What gives a currency reserve currency status: trade invoicing, capital markets, political stability, and the network effects that entrench dominance.

Reserve Currency Status: What It Means and Why It Matters What does reserve currency status mean? How it confers economic power on the issuing nation, and the mechanisms that sustain or erode it over time.

Reserve Currency vs Invoicing Currency: Key Differences Explores why reserve currencies held by central banks differ from invoicing currencies that price global trade, and the economic forces driving each role.

Reserve Depletion Warning Signs in FX Defense Observable indicators—import coverage ratios, short-term debt coverage, and reserve burn rates—that signal a country is running out of foreign exchange reserves.

Reserve Drawdown Threshold: How Much Can a Central Bank Spend Defending Its Currency? Learn what limits how much reserves a central bank can spend defending its currency and when drawdowns force policy reversals.

Risk-On vs Risk-Off Behaviour in Currency Pairs How currency pairs reliably appreciate or depreciate during market-wide risk shifts driven by safe-haven and carry dynamics.

Russian Ruble The RUB's role as a commodity-linked currency, its oil-revenue dependence, and exposure to geopolitical sanctions.

Safe-Haven Currencies Why certain currencies strengthen during crises and geopolitical stress, driven by institutional demand for perceived stability.

Same-Day Settlement in FX Value-today trades that settle on the deal date itself, priced at a premium to compensate for the execution urgency.

Saudi Riyal The SAR's fixed dollar peg and its central role in petrodollar recycling and Middle Eastern monetary stability.

SDR vs Reserve Currency: What Is the Difference? Why the IMF Special Drawing Right is not a reserve currency that circulates in trade, and what role it actually plays in the global monetary system.

Seagull Option A three-leg FX option structure that provides zero-cost protection by combining a bought call, sold put, and sold call to cap both upside and downside.

Side Effects of Large-Scale Reserve Accumulation Side effects of reserve accumulation include monetary expansion, inflation pressure, asset bubbles, and reduced policy autonomy—costs of currency intervention.

Singapore Dollar Stable Asian reserve currency serving regional trade finance and central bank reserves.

Slippage Difference between expected and actual execution price when entering or exiting a trade.

Smithsonian Agreement The 1971 accord that replaced Bretton Woods with wider currency bands before floating rates replaced it.

Snake in the Tunnel The 1970s European currency arrangement limiting intra-regional fluctuations within a band against the dollar.

Soft Peg A soft peg is a currency peg that the central bank commits to defend but will adjust if economic conditions deteriorate. Soft pegs offer flexibility but less certainty than hard pegs, and are vulnerable to speculative attacks.

South African Rand High-yielding emerging market currency offering above-market interest rates and volatility to carry traders.

Special Drawing Rights (SDR) The International Monetary Fund's composite reserve asset comprising a weighted basket of major currencies.

Special Drawing Rights (SDR) Explained How the IMF's SDR works as a supplementary reserve asset, its basket-based valuation, and its role in international finance.

Speculative Attack A coordinated or mass-scale assault by currency traders betting that a fixed or pegged exchange rate cannot be defended, forcing rapid currency collapse.

Speculative Attack on a Peg The mechanism by which coordinated selling exhausts currency reserves and forces a central bank to abandon its exchange-rate peg.

Spot Exchange Rate The spot exchange rate is the price at which two currencies can be exchanged immediately—or within two business days, the standard settlement window in FX markets. It is the most visible and frequently quoted rate in foreign-exchange trading.

Spot Value Date The standard settlement date for FX spot trades, two business days after execution, which accommodates clearing and payment infrastructure across currencies.

Spot vs Forward Settlement in Forex: How Delivery Dates Differ How spot forex trades settle in two business days while forward contracts lock in a rate for a future date, and why businesses use each.

Spread A spread in FX is the difference between the bid and ask prices of a currency pair. On major pairs, spreads are typically 1–2 pips; on exotic pairs, 10–50+ pips. The spread is the immediate cost of entering and exiting a trade.

Standard Lot A standard lot is 100,000 units of the base currency in an FX trade. It is the default lot size in institutional forex markets and results in $10 of profit or loss per pip for most currency pairs.

Sterilization Limits in a Managed Float Regime Limits of sterilization in managed float: persistent intervention erodes foreign exchange reserves, raises domestic interest rates, and eventually forces policy choice between currency adjustment or capital controls.

Sterilized Intervention Foreign exchange operations that neutralize monetary effects, keeping interest rates unchanged while managing currency.

Sterilized vs Unsterilized Currency Intervention Sterilized vs unsterilized currency intervention determines whether a central bank's FX purchases expand the money supply. Learn how each type affects interest rates and inflation.

Sterilized vs Unsterilized FX Intervention How central banks choose to offset or allow the domestic monetary impact of sterilized vs unsterilized foreign exchange intervention when managing currency markets.

Stop-Out Level The margin threshold at which a broker automatically closes all open positions to prevent account equity from going negative.

Swap Line Establishment Central bank bilateral currency exchange agreements enabling emergency liquidity provision.

Swap Points in Forex: How Forward Pricing Works Swap points adjust spot exchange rates to create forward rates based on interest rate differentials between two currencies, pricing the cost of borrowing one currency to fund another.

Swedish Krona The currency of Sweden, a small open economy sensitive to global trade cycles and risk appetite shifts.

Swiss Franc Safe-haven reserve currency backed by banking neutrality, stability, and political independence.

Synthetic Currency Pair Construction Learn how to construct synthetic currency pairs by combining two dollar-based pairs to trade illiquid cross rates with tighter spreads and deeper liquidity.