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GBP / USD (BRITISH POUND / US Dollar)

How can You trade the GBP/USD?

Perhaps the safest method to trade this currency pair is by trading the Great British pound versus against the United States US dollar at your bank or other financial institution. This approach, however, does not give traders the much flexibility they desired and it could take a while until they get the payout on their positions.

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Futures and options are also a popular choice among traders, as these leveraged derivative products allow you to trade the asset of your choice while only investing a fraction of its real market value. The one major disadvantage is that if your trade closes with at a loss, you could lose your invested capital.

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What factors influence the GBP/USD?

  • Key economic events such as gross domestic product statistics, purchasing managers’ indices, and retail sales figures can help traders gauge the performance of the American and British economies.
  • Interest rate decisions, inflation trends, and any changes made to these countries’ monetary policy can cause the GBP/USD to rise or fall.
  • Consumer confidence indices, which measure the public’s mood in the United Kingdom and in the United States, can also affect this pair’s market value.
  • Major political events can further influence the GBP/USD, altering the direction in which the pair trades based on the new administration’s policy.

What to consider when trading the GBP/USD?

The long history, stability, and the economic stature of the United Kingdom and the United States makes the GBP/USD one of the most widely traded currency pairs. This, in turn, translates into a highly liquid market, so traders can enjoy numerous trading opportunities throughout the day. 

However, the global currency markets can be difficult to navigate at times, and this currency pair is no different. Those choosing to trade it should keep a close eye on the GBP/USD price chart and develop their trading strategy accordingly. 

In the currency market, the GBP/USD – also known as the cable – is the third most traded pair after the EUR/USD and USD/JPY. 

Here are the top reasons why GBP/USD is so popular: 

  • The UK and USA are some of the oldest and biggest modern economies. 
  • These countries present market safety and opportunity, factors that are important for traders. 
  • There is a lot of liquidity and volatility with these pairs.  
  • Getting information on either country is easy  
  • These two economies are constantly growing. 
  • The US and UK have similar political systems; they’re both openly democratic countries and have multinational demographics. They are also part of similar political and economic institutions such as NATO, OECD and G20. 

How to be successful

To be successful in trading this pair, it is important to understand the dynamics of these affiliations and how they affect the currency movements. Whenever a G20 or G10 meeting is held, the lead-up and outcome could affect the currency pairs. 

A major change with the UK is its decision to leave the European Union. This had major implications on the British pound. Similarly, the past US election has proven to be extremely volatile for global markets. Understanding how politic events will affect either of these pairs will determine how successful you can be. 

WHY IS IT called the Cable?

It is known as the Cable because the first transatlantic cable was laid from the United States to UK for communication purposes, under the Atlantic Ocean, in 1858. The cable allowed currency quotes and other key economic information to be transmitted through the system. 

Two economies to understand

To successfully trade any currency pair, you need to understand that you are dealing with two economies. Without a detailed understanding of how the US and the UK economies work, you won’t be able to make good trading decisions. 

Questions you should be asking yourself: 

  • How the two countries trade?  
  • Which is their trade balance?  
  • How the two countries relate with the outside world?  
  • Which is their monetary and fiscal policy, and their politics?  

Asking and answering the above are some of the key points you should focus on. 

If the US announces a trade embargo against China but the UK maintains trade, you can expect the USD to go down and the GBP to rise. 

TRADING HOURS

When trading any currency pair, timing is very important. There are two times when the volumes of the trade are optimal for the USD/GBP – 3am and 4am EDT. This happens at the intersection of the European/Asian markets and intersects the European/American markets. Most orders are placed during this time. 

Major breakouts often occur when the European markets open. In addition, major economic movements affecting the two currencies are released during the European and US sessions. 

The BEST TIME TO TRADE GBP/USD

The best time to day trade the GBP/USD is during the European session. This is because the UK releases most of its economic data during this time. Volume and volatility increases during the American session. 

There is usually a lot of volume trades during the opening of the American market because the most economic figures are released.  

FUNDAMENTALS THAT MOVE THE GBP/USD

There are several fundamental factors that traders should consider when trading the GBP/USD pair.  

Here are some of the major factors:  

  • Federal Reserve – The GBP/USD moves when the Fed makes decisions or when its members meet to discuss policy. 
  • Bank of England – The pair moves when the BOE makes decisions or when its leaders meet. 
  • Inflation – The UK and US inflation will affect interest rates which in turns affects the currency pair 
  • Employment data – The UK and US employment releases employment figures each month. This is a good indication of how either country is doing economically.  

Other factors that can affect the GBP/USD are geopolitical events, retail sales, and industrial production. 

How to trade GBP/USD CFDs

The GBP/USD is one of the five major currency pairs in the forex market. It is also one of the oldest tradable currency pairs on the market. An individual can trade GBP/USD with either a forex contract or alternatively, they can trade a Contract for Difference (CFD) on a particular currency pair. This allows you to speculate on the price difference without owning the underlying asset. 

GBPUSD Chart by TradingView

Did you know?

Trading tThe GBP/USD pair, also has been known as the ‘trading the cable’ since the 1800s., is where the trader sees how many US dollars are worth one Great British pound.

If the pair is quoted as trading at 1.50, it means it takes $1.50 to buy a single pound.

This pair is among the five most traded currency pairs in the foreign exchange market.

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