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GBP/USD (pound/dollar) is the second most popular currency pair after EUR/USD (euro/dollar).
About 10-14% (average - 12%) of all financial transactions in the market are made with GBP/USD. In order to understand the nuances of working with this currency pair, you need to know such concepts as:
1. Time period of maximum activity. This is a period when a large number of transactions are made on the market with a particular currency pair. Here you need to understand that any currency is in demand during a particular trading session (British, Asian, and so on);
2. Volatility. These terms denote the range of fluctuations in different time periods for each currency pair. High volatility = high oscillation frequency. Accordingly, a low indicator indicates that the currency is “calm”;
3. Correlation. Translated from Latin, this word means “relationship” or “correlation”. And here it is worth understanding that currency pairs move together (sometimes with a slight delay due to lags).
There are opponents and there are allies. Enemies move in opposite directions from each other, while allies move together. This parameter is not 100%, otherwise trading on the exchange would be too easy.
Despite this, every trader should be aware of the ratio of currency pairs to each other.
Important! Currency pairs are often referred to as assets.
Novice traders cannot work with multiple pairs, as each currency requires a separate strategy. Even forex professionals often only trade EUR/USD. This is due to the fact that this pair is the most calm - it is practically not affected by political and economic events.
First you need to know the basic parameters of the currency pair. So, the characteristic of GBP/USD:
- maximum activity is observed during the European and American sessions;
- minimal activity during the Asian session;
- high volatility, the currency pair is characterized by jumps of 120 points;
- inverse correlation with the EUR/GBP pair.
Important! There is also a relationship with USD/CAD. As a rule, when the pound rises against the dollar, USD/CAD, on the contrary, falls. In this case, an inverse correlation is observed, but it does not always manifest itself.
By the way, it is a mistake to believe that GBP/USD duplicates the movement EUR/USD. In fact, these pairs are practically not interconnected. It should be recognized that coincidences in the movement of these assets occur frequently.
But the rate of the pound against the dollar can change very sharply, with the advent of news from the world of the economy, which cannot be said about the euro against the dollar.
Correlation is a weak indicator that often fails inexperienced traders. Despite this, the relationship between currency pairs needs to be known and taken into account, since it often turns out to be true.
Assets interact with each other and influence each other's movement. But even the most experienced trader cannot always predict how allied or opposing assets will move.
Why GBP/USD should not be chosen by beginners?
Experienced traders do not recommend beginners to trade the pound/dollar. This is due to the instability of this asset. Often, the GBP/USD pair is called aggressive, which is also associated with high volatility.
Roughly speaking, trading this asset with no experience, you can lose all the invested funds.
The currency pair is unpredictable, which is largely due to false breakouts that occur due to sharp movements in the pound. Moments like this need to be tracked.
To successfully trade GBP/USD, you need to have a proven trading system.
On the screen you can see how volatile this asset is:
Important! On the other hand, during periods of sharp jumps, the currency pair allows you to make good money. Therefore, the high volatility of assets is a minus for inexperienced currency traders and a plus for professionals.
As already mentioned, the cost of GBP/USD may jump by 120-200 points, which will lead to fluctuations in other currency pairs.
In the case of the pound / dollar, you need to track daily statistics, since only they will be relevant and correct.
Beginners are not recommended to start trading GBP/USD right away, as the financial risks are too high.
First you need to develop “trading” skills on calmer assets and create a competent trading system.
Important! The GBP/USD is especially active during the periods of the London Stock Exchange operation. This factor must be taken into account.
The pound/dollar pair can rise in price in a few minutes, and then also collapse sharply. In the market, this parameter of assets is called “the propensity for rapid reversals”.
Dependence on political and economic events
GBP/USD is changing under the yoke of various political and economic factors.
Therefore, a trader needs to keep track of all the latest news in order to approximately understand where and how the asset rate will move. The currency pair is influenced by such factors as:
- interest rate in the main English bank;
- consumer/producer price index (inflation in general);
- GDP (gross domestic product or market value of services and goods) in the US and England.
These are just 3 factors that affect the pound against the dollar. It is necessary to track the news on the economic calendar, covering not only England and the USA, but also Canada, the Eurozone.
Political events can also have a strong impact on the value of assets.
Perhaps the GBP/USD is the most “soft” pair, reacting to the slightest changes in the territory of specific countries. This is the main feature of the GBP / USD pair, which every trader should take into account.
GBP/USD is a tool for short-term investment
The euro is a fairly stable currency, which cannot be said about the pound. The catalyst for the movement of this currency pair is often microeconomic news from England, to which the pound reacts violently.
At the same time, the asset may go “against” the news, start to fall in price with a seemingly stable economic situation.
Therefore, this currency pair is not suitable for long-term investment. It needs to be sold quickly enough, otherwise you can be in the red. GBP/USD is often traded on a swap (swap, exchange).
Important! In 2009, the pound fell by as much as 350 points due to the fact that the main bank in the UK changed the interest rate.
After that, the currency began to rapidly gain in price: in 3 months it rose by 3500 points.
In this case, you can see how economic news affects the pound and what it leads to.
Many refer to the GBP/USD as a currency pair for scalpers. Scalpers are people who try to capitalize on minor changes in the exchange rate. As a rule, they enter into many transactions (from 100) and receive profit from this.
Largely because of the scalpers, the pound/dollar pair is so volatile and unpredictable. As a rule, experienced investors aimed at large transactions bypass this currency pair.
Let's summarize. GBP/USD is an unpredictable and aggressive asset, the movement of which largely depends on microeconomic and political news. For beginners, it is better not to mess with this currency pair, as it requires detailed forecast.