Forex Trading Term: Linked Exchange

When reading about countries and their currencies, you may come across the forex trading term "linked exchange." A linked exchange rate system is an interesting system in which one currency is linked to another, set at a specific rate -- or range of rates.

For example, the many currencies in the Middle East have a set link (or peg) the the U.S. dollar. The Hong Kong dollar is also linked to the performance of the U.S. dollar.

It is important to realize that a linked exchange rate system is not the same as a fixed system. In a fixed system, the central banks interferes regularly to cause the value of a currency to change or remain constant.

In a linked exchange rate system, the central bank does not do much to interfere, beyond setting the linked exchange rate.