The GBP / USD currency pair is not only one of the most traditional, but also one of the economically most important currency pairs in the world. Investors who trade pound dollars with forex are trying to make a profit with exchange rate changes. Market participants who trade long in GBP / USD expect the pound to appreciate.
Similarly, investors who trade short in the pound dollar expect the currency to depreciate. The exchange rate is influenced by numerous different variables and parameters. Business cycle and monetary policy are just as important as market considerations.
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Criteria of the GBP / USD currency pair:
- Very volatile, which makes it very risky Trading results in
- no. 3 of the daily trading volume
- Trend of the pound sterling
- The trading takes place primarily in the American and European session
- Cable as the common name
Trading GBP / USD with Forex: Process of a currency transaction
A hundred years ago, currency speculators had to line up in long lines in front of banks. Today, a mouse click is enough to open and close positions. However, the basic pattern of a currency transaction has never changed. If an investor opens a long position in GBP / USD (an appreciation of the pound is expected), he first takes out a loan in USD and then exchanges this USD liquidity for GBP liquidity. The dollar is thus sold and the pound bought. If the investor is right in his assessment and appreciates the pound sterling against the USD, he does not have to use all of the GBP liquidity to repay the USD loan. The difference is the profit.
Trading in British Pounds and US Dollars is the third most popular trading pair. This is despite the fact that the currency pair takes a very wide range in its course.
GBP / USD exchange rate in quantity and price quotation
The pound dollar exchange rate becomes Usually stated in the format of the quantity listing. This format indicates how many USD units are paid on the market for £ 1.00. An alternative indication, which is sometimes used by the media, is the price quotation, which mathematically corresponds to the reciprocal of the quantity quotation. It indicates how many units of pounds are paid for $ 1.00 on the market. Sometimes the different formats (not least in the graphical representation of the exchange rate in the chart) cause misunderstandings.
The currency pair is primarily given in quantities. Alternatively, the price quotation can be used.
How to trade GBP/USD (Cable): Tips & Tricks
Act successfully despite volatility
To get a grip on the high volatility that is also present in the GBP / USD currency pair safety precautions, such as stop loss. The order is then executed when the price rise or fall or price linked to the stop loss has been reached. This prevents bottomless losses. Trailing stop and take profit are further orders or amounts with which the trade can be hedged and the effects of volatility can be hedged.
Price differences result from the prevailing and by the Central Bank of Great Britain, the Banc of England ( BoE) or the Federal Reserve, or Fed for short, the central bank of the United States set interest rates. For example, if the Banc of England decides to raise the base rate, it is worthwhile for the trader to go long with the GBP / USD currency pair. Profit is the amount of interest rates that results from the difference between the British and the US interest rate.
In order to be ready for a long position or a timely decision at any time, track the current market data, especially when the trading hours of the New York Session are open, as well as the tracking of economic news to central banks, as well as the economic policy decisions of Great Britain and the United States.
The cable is often traded via SwingTrade. This is a forex strategy, in which trading in day trading and position trading is located. Depending on the expected price fluctuations, trading takes place on hourly or daily charts. If a trend is foreseeable, the order can be held for days or weeks via SwingTrade. Just as the trend can be used, trading opportunities can be improved when combined with the contra-trend strategy. This is where the trader's experience in terms of market experience and a bit of luck play into the success of the action.
The high volatility of the GBP / USD currency pair clearly shows the high risk at every nook and corner. For this reason, trading in this currency pair is only recommended for experienced traders with the appropriate critical market observation ability. In addition to the trend following and contra trend strategy, the high traffic breakout strategy is also recommended.
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Historical development and important facts
Strong price swings and chaotic price movements are two obvious characteristics of the British pound. In retrospect, the GBP / USD currency pair has clearly succumbed to price fluctuations compared to the EUR / USD currency pair. GBP / USD can thus be described as more volatile compared to EUR / USD.
To date, the GBP / USD currency pair has not only shown itself with often surprising price fluctuations. The currency pair also has solid tendencies continuous price movements. Each trader must decide for themselves whether this is sufficient as a reliable component and a corresponding trading decision.
Since the currency pair can be accompanied by high and sometimes difficult to predict price fluctuations, only experienced traders should use the currency pair Trade GBP / USD.
Source: IG Markets, current GBP / USD exchange rate trend in January 2015
Advantages of this currency pair
During the high volatility is a negative criterion for risk-averse traders, it can literally attract traders willing to take risks. If you bet on the GBP / USD currency pair in an explosive upward or downward movement, you have a good chance of significantly increasing your profit. Due to the leverage in Forex trading, the already existing risk in Forex trading is expanded to include exchange rate-related volatility and leverage effects.
The main trading hours for this currency pair are the New York Session. The reason for this is the inviolable leading function of the US dollar against the British pound. From a German perspective, the New York session is open from 1 p.m. to 10 p.m. GMT. The session, also known as the American session, is the session with the largest trading volume during trading hours. Seen in this way, it is clear what profit margins are possible with the GBP / USD currency pair.
If traders of this currency pair also want to trade in the London Session or outside the American Session, this is between 8 and 5 p.m. GMT. Both sessions are open at the same time between 1 p.m. and 5 p.m. GMT.
Experienced forex traders can achieve good chances of winning through leveraged forex trading and the characteristics of the GBP / USD currency pair. Hardly any other currency pair offers this range of fluctuations.
Conclusion: This currency pair offers versatile trading options
In direct comparison with the EUR / USD currency pair, the currency pair is GBP / USD much more sensitive. Traders who are more familiar with trading technology will most likely choose a different trading pair. GBP / USD trading Forex is more suitable for analysts who already have a look at the fundamental market data and decisions that are so important for GBP / USD.
Traders who are interested in the currency pair GBP / USD due to the tension in trading combined with high profit opportunities should initially trade in practice a forex demo account or CFD demo account. Even if there are good trading results, every trader should be aware of the risks when trading via the real trading account.
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