The United Kingdom possesses the fifth largest economy in the world. This is one of the major reasons that make the British pound one of the largest tradable currencies in the planet. In this blog post, let us explore tactics to trade GBP/USD.
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| Basic guide to FOREX Trading |
GBPUSD – an introduction
GBPUSD is a symbol, which indicates the British pound to the US dollar exchange rate explains an expert on technical trading signals. The British pound is the base currency here while the US dollar is to be considered as the terms currency. The quote of the currency pair indicates or says the number of US dollars that are required buying one British pound.
Now let’s take up an example:
Suppose the GBP/USD exchange rate shows 1.2500.
As we’ve already covered it in the section above, the numeric indicates how many units of the terms currency you need buying one unit of the base currency. According to the example above, you need paying 1.25 USD to purchase 1 GBP.
If you are selling instead of buying, the same holds true. The exchange rate shows how many units of the terms currency you get for selling 1 unit of the base currency. As per example given above, you get 1.25 USD on selling 1 GBP.
GBPUSD in Forex trade
Let us start with an example to make things easier to understand.
Symbol
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Bid
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Ask
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GBPUSD
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1.27366
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1.27373
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In the example or quote given above, there is a bid price and a ask price. The ask price levels are bound to fluctuate constantly.
A pip is the unit of measurement in any GBPUSD quote and it is 0.0001 of the price quoted. Thus, when the bid price rises to 1.27376 from 1.27366, the change is called a 1 (one) pip move.
The variation or difference between the bid price and the ask price is known as ‘spread’. In the example above, the spread is (1.27376 – 1.27366 =) 0.00007, which is less than 1 pip. The last digit in the quote is left for trading robots to ensure precision pricing.
Suppose you buy certain number of units at the ask price of 1.27373 and sell immediately before any price movement could set in. There you lose 0.7 pips because you sold at the bid price of 1.27366. In other words, you have to wait till the time the market goes more than 0.7 pips higher before you sell out at the bid price making a profit.
GBPUSD Exchange Rate
As a trader, suppose you buy at the ask price of 1.2737 and then gradually the GBPUSD quote moves to 1.2757 bid. If you want to close down at the bid price of 1.2757, you make a profit of (1.2757 – 1.2737 =) 20 pips.
On the other hand, when the market shrinks from 1.2737 to 1.2717 and you decide to sell, you incur a loss of (12737 – 12717 =) 20 pips.
Now at this stage you must be wondering what moves the exchange rate between the GBP and the USD? Experienced traders are of the opinion that it is possible to correctly forecast the rise or fall of any currency pair by monitoring the various influences on the GBP/USD exchange rate.
Factors that move the GBP/USD
The United Kingdom is one of the major trading nations on earth. There are so many factors that influence the GBPUSD exchange rate says a trader experienced on these trading signals. Some of the factors are as contrasting as central bank policy, demand for the British pound in the international market and political tensions across the globe.
- The UK and the US economy – Global demand for a currency always moves toward economies that are strong and promising. Thus, the GBPUSD exchange rate is likely to rise when the UK economy is going strong but the UK economy is slowing down.
- Policies implemented by the Bank of England (BoE) – Everyone knows that the BoE releases its Monetary Policy Summary report every month. The report details the factors that urged it to take any new measure like interest rate cut, increase in interest rates and others. It is a proven fact that a currency falls on the threat of interest rate cuts while it rises on the prospect of rising interest rates.
- Government and politics – Political events facilitate huge movements in a currency. Let us refresh our memories to get back to a recent event. There was a massive collapse of the British pound to US dollar exchange rates over BREXIT when the UK voted to leave the EU. Election results and ups and downs in the fortune of political parties related to that make a huge impact on the GBP/USD exchange rates.
- Role of economics – The factors discussed above usually define long-term trends of the market. But there are other small factors too that are mostly related to economics that need to be mentioned in this context. These factors include retail sales, employment figures, inflation and others.
GBP/USD calendar is worth watching
There are many short-term traders doing day trade GBPUSD around events and news that are likely to make high impact on the market. This category of traders tries capturing the market volatility that those news or events are likely to provide.
Long-term traders prefer tracking news announcements to identify any trend in advance. In order to decipher the best trading signals on time, you should keep watching the GBPUSD calendar. Many such reliable calendars are available online. These calendars offer you upcoming news that is likely to affect the GBPUSD exchange rates in near future.
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