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The forex trading market transacts a whopping $6.6 trillion every day, making it the largest market in the world. Forex traders equally make a killing and lose money from trading currency pairs. Only those that trade the right currency pairs end up laughing all the way to the bank.
The British pound is one of the most traded currencies in the forex market, next to the US dollar and others. Trading the British pound with strong currencies like the USD can make you some serious cash. However, you’ll first have to learn the ropes of trading the British pound.
If you’ve been mulling over trading the British pound but don’t know how, we’re here to help. In today’s post, we’ll be looking at everything you need to know about trading the British pound.
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The pound sterling, or the Great British pound (GBP), is the official currency of the United Kingdom. It’s also used in other countries in the UK, like Jersey, Guernsey, South Georgia, Northern Ireland, and the Isle of Man. The British pound is made up of 100 pence and is often denoted with the symbol “£”.
The British pound has a long and interesting history that’s worth delving into. The first official sterling silver coins were minted way back in AD 780, during the Anglo-Saxon era, making it the oldest currency. And since then, the British pound has undergone multiple changes to become the currency we know today.
The GBP prides itself on being one of the most stable currencies in the world. While this is true, it’s not immune to movements. Thankfully, you don’t have to worry about major movements that can turn your investments upside down.
That said, here are the main factors moving the GBP:
BOE Monetary Policy
The Bank of England (BOE) is the central bank of the United Kingdom and is responsible for maintaining monetary stability in the country. The BOE uses two main tools to help it with this:
Open Market Operations: The BOE buys or sells government securities depending on how it wants to influence economic activity and inflation.
Bank Rate: The BOE can raise or lower the bank rate, which is the interest rate that commercial banks use when borrowing from the BOE.
An increase in either of these rates will lead to a strengthening of the British pound, while a decrease will have the opposite effect. This makes the BOE a major factor affecting the GBP’s trajectory.
The UK’s impending departure from the European Union (EU) is another factor that has been shaking the British pound for a while now. While an agreement has been reached between the UK and the EU, there’s still a lot of uncertainty surrounding Brexit.
This uncertainty has led to large swings in the value of the British pound as investors try to price in the different possible outcomes of Brexit. The final outcome of Brexit will have a big impact on the GBP, so it’s definitely something to keep an eye on.
The British pound holds the fourth spot as the most traded currency. It’s preceded by others like the USD, and Japanese Yen. While you can trade the GBP with any currency, the most popular currencies to trade with are:
You can trade the British pound from Sunday evening to Friday afternoon. However, not all forex pairs actively trade on the market throughout the day.
For the GBP, the best time to trade is during the London session, which is from 08:00 GMT to 17:00 GMT. This is when most of the GBP pairs are actively traded and there’s more liquidity in the market.
Volatility also tends to be higher during this time, so you can often take advantage of bigger price swings.
While the BOE and Brexit are the two main drivers of the British pound, there are other catalysts that can also move the currency. These include:
Inflation data: This is closely watched by investors as it gives them a gauge of how well the economy is doing. Higher than expected inflation often leads to a strengthening of the currency, while lower than expected inflation has the opposite effect.
Employment data: Strong employment data often leads to a strengthening of the currency, while weak employment data has the opposite effect.
Retail sales: This is a good indicator of consumer spending, which accounts for a large part of economic activity. Higher than expected retail sales often lead to a strengthening of the currency while lower than expected retail sales have the opposite effect.
It’s imperative to keep a close eye on all of these factors if you plan to trade the GBP. That’s the only way to have successful trades.
Without proper guidance, it’s easy to lose money when trading the GBP. To keep that from happening, here are a few tips for trading the GBP.
Understand Both Economies
One of the most important things you need to do when trading the GBP is to have a good understanding of both the UK and US economies. This will give you a better idea of how the two countries are performing and what catalysts could move the currencies.
Have a Solid Trading Strategy
A solid trading strategy is arguably the most important factor when trading the GBP. This will guide your trades and set the tone for profitable trades.
There are many different trading strategies out there, so it’s important to find one that fits your style and risk tolerance. A few popular strategies for trading the GBP include:
Trading the news: This involves taking advantage of price movements that happen after economic releases.
Trend following: This involves riding the momentum of a currency pair that’s in an uptrend or downtrend.
Carry trade: This involves selling a currency with a low-interest rate and using the proceeds to buy a currency with a higher interest rate.
Now that you know everything you need to know about the GBP. It’s your move to make, and trade the British pound and rake in the big bucks. Pay extra attention to the price catalysts, exchange rates, and always trade during the recommended hours.
The last part of the equation is a reputable forex trading platform, which is only a click away. Create an account with us today and trade the GBP with the best.
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