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Pips

Pips are units of measurement used to express the change in value between two currencies. Pips represent the smallest increments of difference in exchange rates and they represent the change in value between two currencies. For most currency pairs, a pip is equal to the fourth decimal place of the exchange rate, but it can vary depending on the pair being traded and the size of the trade. A one-pip change in the EUR/USD exchange rate, for example, would be 1.1234 to 1.1235. A pip is a unit of measurement used in forex trading to calculate profit and loss. It is a crucial concept for traders to grasp.

Positive Carry

A positive carry occurs when the income generated by holding a financial asset exceeds its cost. This typically occurs when the asset pays a higher rate of return or yield than the cost of financing the purchase of the asset.

Put Option

Put options are financial contracts that give the holder the right, but not the obligation, to sell a specific asset at a predetermined price (the strike price) before a specific date (the expiration date). The asset that the put option gives the holder the right to sell is known as the underlying asset. Put options are often used as a way to hedge against potential price declines in the underlying asset, or to speculate on price declines.

Put Spread

A put spread is an option strategy that involves purchasing one put option while simultaneously selling another put option on the same underlying asset. The put options have different strike prices, and the option that is purchased has a higher strike price than the option that is sold. The goal of a put spread is to profit from a downward move in the price of the underlying asset, while also limiting potential losses.

Primary Dealer

A primary dealer is a financial institution that is authorized to buy and sell securities directly with a central bank, such as the Federal Reserve in the United States. Primary dealers are an important part of the financial system because they help to facilitate the implementation of monetary policy by the central bank. Primary dealers are typically large, well-capitalized banks or securities firms that are able to make markets in a wide range of securities, including U.S. government securities, agency securities, and mortgage-backed securities. They also act as market makers in these securities, providing liquidity to the market and helping to ensure that prices remain stable.

Pegged Exchange Rate The pegged exchange rate system incorporates aspects of floating and fixed exchange rate systems. Smaller economies that are particularly susceptible to currency fluctuations will “peg” their currency (pegged currency) to a single major currency or a basket of currencies. These currencies are chosen based on which country the smaller economy experiences a lot of trade activity with or on which currency the nation’s debt is denominated in.