Trading Band

A trading band is a published range around a central parity within which a managed currency is allowed to move. The authorities state the central value and the width of the band and undertake to act at its edges, so the rate is left to the market in the middle and meets official flow when it approaches a limit. Bands make a currency's behaviour unusually legible, because the boundaries are known rather than inferred. Price action inside the band is ordinary market pricing; price action at an edge is a negotiation with whoever is defending it. The parameters are policy, not market structure: a central bank can widen a band, shift the parity or abandon the arrangement altogether, and each of those is announced as a policy decision rather than emerging from trading. Anyone following such a pair reads the central bank's own statements for the parameters currently in force, since a band quoted from a stale source describes a regime that may no longer exist.