On many occasions, the term “cable” is used by investors and traders in reference to the GBP USD. In the arena of currency trading, the cable currency pair is highly and vastly traded. The main reason being that it’s among the most liquid pairs traded against the dollar. In order to take advantage of the adjustments and variations in prices, liquidity is an important prerequisite.
Matching the GBP USD pair to other currencies pairs, you will realise that its price range is wider. The simple reason as to this is volatility- which is its most prominent feature; it also is due to the fact that it’s highly unpredictable and impulsive. Brokers engaging in trading at the forex usually give the pair a higher spread quotation due to volatility associated with this currency pair in environments of market trading and under a majority of other situations.
Of the total currrency cross trades happening in all points in time, the GBP USD currency pair’s cross rate exchange makes up for 85% of the total. When an investor considers buying the cable, what they really are doing is speculating the strengthening or intensification of the British Pound-Sterling against the US Dollar. If on the other hand an investor is considering selling the GBP USD currency pair, they are speculating weakening of the British Pound/Sterling against the US Dollar so as to win profits from the trade.
Among the most traded currency pairs, the GBP USD pair comes at position three as it comprises a 14% share of the trading volume daily, this is according to the latest survey released by the Bank for International Settlements (BIS).
Wild movements, many a bogus and false alarms and fake breakouts are known to be raised by the GBP USD currency pair as its one of the most unpredictable, volatile and most fickle. It is for this reason that traders are given warning that lest they have experience in currency trading, they shouldn’t even try trading this currency pair.
Nonetheless, soon as the trader gets experience trading in the forex, starts to comprehend the nuances and characteristics of currencies, the cable included and its characteristic swings and moves which take the currency up or down, abnormal reactions to economical and fundamental reactions, how it forms trends and leanings in the live market etc., the cable will prove to be the old and reliable friend.
The GBP USD currency pair has a preference for large moves. With just the help of a single simple move it is capable of bringing more number of pips as compared to other currency pairs like the USD/JPY or EUR/USD. Many a times, this currency pair is also used to engage in breakout trading. Nevertheless, it’s only the traders that will remind themselves over and again about the risks associated with this currency pair’s increase in proportion to opportunities for profit. The risk proportion is more when the profit opportunity window is wider.
It is a requirement for the GBP USD that stops be placed further apart. This currency pair falls into the volatility category. Above all this, adequate market research and observations that can be used by the traders are also available.
Characteristics of GBP USD Pair
The fact that the average spread for the broker comes near 3-5 pips is the pair’s first characteristic. The average daily range for the pair is at about 150-200 pips. During the London session (0700 GMT – 1700 GMT), is the best time to trade the currency pair as one of the two in the pair is a Euro.
The US Dollar is the GBP USD counter currency and it’s the official currency of the US. Trading for US occurs in New York, and the maximum number of trades happens in this market, therefore logically other trading hours with potential would be in the time when the Stock Market in New York is open and live.
On to factors affecting the rate of the GBP USD is interest rate degree of difference existing between the Bank of England and the Federal Reserve High yield. Additionally, probability for growth in the United Kingdom also triggers the GBP USD pair to go high.
As mentioned earlier, the GBP USD currency pair is certainly not for novices. This is a fact traders need to remind themselves as well as those aspiring not to test the waters yet. Wild fluctuations and high spreads come with the pair.
For a trader with little or no experience, the spikes and wide price brackets for the currency pair may prove to be too much of a hurdle, and in this case it won’t be a surprise they may end up losing their money if they are trading in the live environment.
If an investor or a trader has enough experience and is familiar with both of the currencies, this along with clear understanding of market economies, their weakness, strengths, triggers etc. they will be capable of striking a few deals which will end up winning and thus book profits. The trading style recommended for this currency pair is either swing trading or day trading. So before testing the waters, traders with expertise in this style should deliberate on this pair and thoroughly study it.
Different ways of trading this currency pair are available. For instance, if a trader or investor applies technical analysis and/or analyses news that are fundamental from the US and UK zone it helps make trading decisions in the GBP USD more accurate and easier and hence profitable. It makes great sense that forex traders/ investors make habit of watching false break outs and avoid falling preying to such bogus alarms.
What Makes the GBP USD a Preferred Pair among Traders?
The international economic scene was controlled by Europe before the US became a superpower.
GBP was under the consideration of a reserved currency when Europe was leading. For many economies, many things in a variety of ways were changed due to World War I and II. The result of the crises was emergence of US as a superpower and the US Dollar becoming the reserve currency. The growth of UK was on decline due to rigidity and non-flexibility of regulation and the labour scene market.
Regardless of this, the economy of the UK has continued to prosper and maintain its strength. Its currency has still maintained stability and plays an important role in financial markets globally. Much as the reserve currency is the USD, the pound is still viewed as an important currency among traders. This is one of the main reasons traders choose trading it against the U.S dollar.
Because of the volume of traders, the GBP USD currency pair has remained popular, and this leads to the liquidity it offers traders. The other reason is because this currency pair offers tight bid ask spreads which traders are usually after. The most important reason is that problems that usually rise due to arbitrage are absent. This implies that no scope exists for traders where they can buy and sell the currency pair simultaneously to make gains from price difference.