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Pegging

Trading Term
  1. Fixing the exchange rate of one country’s currency to another as a means of stabilization. This is typically done to match the United States.
  2. A practice where an investor buys a large quantity of underlying commodities or securities near the expiration date of a derivative held by an investor. This is typically done to encourage favorable market price movement. For example, an investor writing a put option would engage in pegging so that lowered prices would eliminate the requirement to purchase the underlying security or commodity from the option holder. The goal is make the option expire with no value so that the initial premium received by the writer is protected.

Also known as Capping

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