What it means
A non-deliverable forward is a cash-settled FX forward contract — no physical exchange of currency at maturity, just a cash payment in a freely-convertible currency (usually USD) reflecting the difference between contracted rate and spot rate at settlement. NDFs are the standard hedging instrument for currencies where the local government restricts cross-border currency movement: KRW, TWD, INR, BRL, RUB, EGP, NGN.
Why it matters
For multinational corporates with EM exposure, NDFs are the only way to hedge currency risk on restricted currencies. For traders, the NDF curve is a forward-looking signal on EM currency expectations — and on the implied yield differential that's not directly tradable in spot.
How to use it
Retail FX brokers rarely offer NDFs directly. Institutional traders use NDFs to hedge corporate FX exposure or to express directional views on restricted currencies. The NDF-implied forward rate often diverges from official onshore spot — that divergence is itself a signal about devaluation risk.
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