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Benefits & Risks Trading GBPUSD
Benefits of trading GBPUSD
- Due to its deep liquidity and high volatility, many trading opportunities exist.
- It is one of the most widely traded forex trading instruments.
- Getting information on the two countries is relatively easy.
Risks of trading GBPUSD
- Hightened volatility with associated risk leaving the EU.
- Tends to have wider spreads than other majors.
- Marked price sensitivity at the London open.
What is the GBPUSD and why trade it?
The Great British pound sterling (GBP) and the US Dollar are one of the oldest and the most actively traded currency pairs, trading an average of $431 billion per day (Bank of England, 2020). With the UK being the fifth largest economy in the world and the US being the largest, the GBPUSD is the third most traded currency behind the Euro and the Japanese Yen. The GBP/USD pair is often referred to as the “Cable”, due to most of the trading historically being traded via telegram cables.
What drives the GBPUSD?
There are many drivers of the currency, including but not limited to:
- News events in the United Kingdom and the United States.
- Economic data being released such as UK Inflation or US non-farm payrolls.
- Geopolitical events such as Brexit or events on the European continent.
- Interest rate and inflation differentials in the UK and the US.
- Speeches and conferences from the Bank of England (UK’s Central Bank) and the US Federal Reserve.
- Updates on the UK leaving the European Union.
When is the most active time to trade the GBPUSD?
Trading on GBPUSD is in line with other major FX pairs with Global Prime in that it is available 24/5. However, trading is most active between the London morning starting at 06:00 GMT and the beginning of the New York session at 12:00 GMT, and the US session where liquidity is highest and the spreads lowest.
What are the advantages of trading the GBPUSD?
- As one of the most actively traded currency pairs, GBPUSD has deep liquidity and tight pricing, meaning you can often get in and out of your trade for lower cost than some of the other currency pairs.
- Due to the UK finalising its deal to leave the EU, the GBPUSD can be prone to higher levels of volatility (should that be your preference).
- The UK and the US are two major economies, and economic news and events related to these countries can have a significant impact on the GBPUSD. Traders can use this to their advantage by keeping an eye on economic releases.
- The GBPUSD is actively traded during both the European and US trading sessions, which means that traders can access the market for a significant portion of the day.
When can you trade GBPUSD?
Day trade the GBPUSD between 0600 and 1600. You can also day trade the GBPUSD only between 0800 and 1000, or 1200 to 1500 GMT. This is a good way to maximize efficiency.
Should I trade GBPUSD?
One of the most liquid currency pairs is GBPUSD. The spread and liquidity are good and there is enough volatility to make trading interesting.
What platforms can I use to trade GBPUSD?