Currency Peg
A fixed exchange rate against another currency, defended with reserves until it breaks.
A currency peg is a fixed exchange rate defended by central-bank intervention. Pegs look permanent until reserves run out, then they break fast.
A currency peg fixes an exchange rate to another currency or basket, enforced by the central bank buying and selling to hold the line. Pegs offer stability for trade until reserves run thin or policy diverges, at which point breaks are violent: the 2015 franc shock remains the textbook case.
How It Works
- Central bank quotes both sides around the peg level
- Reserves fund the defense against market pressure
- Breaks gap hundreds of pips past all stops
Trading Tips
Never fade a credible peg with size: banks outlast accounts
Watch reserve data for defense fatigue
Keep stops assuming gaps near any peg
Currency Peg Example
Say EUR/CHF sits at the 1.20 floor for three years, then the peg lifts without warning and the pair prints 0.85 within minutes. Stops fill 500 pips away, several brokers fail, and the floor becomes a memorial.
How Traders Use Currency Peg
Trade pegged pairs for carry and calm, never for breakout excitement. Size as if the peg breaks tomorrow, because the one time it does pays for a lifetime of caution.
Related Terms
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