@

Non-Deliverable Forward

What Is A Non-Deliverable Forward?

A non-deliverable forward (NDF) is a contract to buy or sell a specific currency at a specified price in which the settlement of the contract at expiration doesn't involve the physical delivery of the currency, hence the name.

In general, NDFs are used to hedge or speculate in local currencies in emerging markets where the currency has low liquidity, is not freely convertible, or where there are restrictions on capital flows. Most commonly, they involve currencies of Latin American, Asian, and East European countries. NDF activity generally recedes as a currency evolves into full convertibility.

NDF transactions are handled offshore and outside the country whose currency is being traded. They also occur at an international financial center, such as New York, London and Singapore. The market is over-the-counter rather than being an exchange-traded market.

NDFs are usually settled in U.S. dollars or another freely convertible currency, such as the euro, the Japanese yen, or the British pound, while the other currency is "non-deliverable." The two parties in the transaction agree to settle at the difference between the exchange rate listed in the contract and the prevailing spot rate, with one party paying the difference to the other.

NDFs became commonly used by multinational corporations in the 1990s to hedge their risk in currency fluctuations. Now most of the activity is from hedge funds, traders, and investors to speculate on the value and direction of currencies. As a result, this type of trading tends to be volatile.

NDFs are not limited to non-convertible or illiquid currencies. They can be also used by parties looking to hedge or speculate in a particular asset but are not interested in taking delivery of it.

Summary

A non-deliverable forward (NDF) is a contract to buy or sell a specific currency at a specified price in which the settlement of the contract at expiration doesn't involve the physical delivery of the currency. NDFs are most often used to hedge or speculate in illiquid or nonconvertible currencies.

Disclosure

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, Friedberg Direct, FXCM or its affiliates takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of Friedberg Direct and FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the Friedberg Direct's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.**

Order Execution Only

Order Execution Only

Regulatory Documents:
IIROC Brochure: How Can I Get My Money Back, How IIROC Protects Investors, IIROC Complaints Brochure, CIPF Brochure, CIPF Coverage Policy

The relationship between Friedberg Direct and FXCM was formed with the purpose to allow Canadian residents access to FXCM's suite of products, while maintaining their accounts with a regulated Canadian firm. All accounts are opened by and held with Friedberg Direct, a division of Friedberg Mercantile Group Ltd., a member of the Investment Industry Regulatory Organization of Canada (IIROC). Friedberg customer accounts are protected by the Canadian Investor Protection Fund within specified limits. A brochure describing the nature and limits of coverage is available upon request or at www.cipf.ca.