Peg trading: the Hong Kong dollar and other pegs
Pegged currencies trade in narrow bands by design — until the peg breaks, and then the move is historic. Trading pegs is a study in asymmetric risk: small steady profits, rare catastrophic losses.
Have you traded one?
- the peg and your strategy
- how you weighed the break risk
- what you learned from a peg break, if you've seen one
The Hong Kong dollar peg guide explains the mechanics.
Background: The Hong Kong dollar peg explained: how the 7.75–7.85 band works
Hong Kong has linked its currency to the US dollar since 1983. How the Linked Exchange Rate System keeps USD/HKD between 7.75 and 7.85, and which other currency pegs traders should know.
What is the Hong Kong dollar peg?
Under the Linked Exchange Rate System, in place since 17 October 1983, the Hong Kong Monetary Authority keeps the Hong Kong dollar between HK$7.75 and HK$7.85 per US dollar.
What happens when USD/HKD reaches 7.85?
The HKMA buys Hong Kong dollars from banks with US dollars under its weak-side Convertibility Undertaking. That reduces Hong Kong dollar liquidity, which tends to push local interest rates up and support the currency.
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