Characteristics of the currency pair GBP/USD
The Forex currency market is the largest and most liquid market globally, and thousands of people worldwide trade daily.
The famous phrase "money doesn't sleep", as recited in the favourite Hollywood movie "Wall Street", perfectly describes the Forex market. The Forex market is open for trading from 22:00 GMT Sunday until 22:00 GMT Friday. That means that you can trade forex 24 hours a day during the week!
What are currency pairs?
Forex trading (or foreign exchange trading) includes buying and selling currencies in pairs. To buy and sell currencies and profit from them, you need to know how much each currency in a currency pair is worth about the other. This ratio determines the price of the currency pair.
Many novice traders find it difficult to understand what they are buying and selling when they trade currencies. However, the answer is straightforward:
We always open buy or sell positions with the first quote currency.
Buy order GBPUSD - we buy GBP and sell USD, expecting a price increase.
GBPUSD Sell order - we sell GBP, we buy USD, we hope a fall in the price.
The name of a currency pair consists of the name of constituent currencies, followed by the value of the "base" currency (first in the couple). Finally, the base currency is expressed in the currency of the "quote" (second in the pair).
For example, a quote of GBP/USD 1.38 means that one pound is worth $1.38. Thus, the base currency is the pound (GBP), and the quoted currency is the US dollar.
The order of the currencies making up a currency pair and their codes (letter designation) is determined by the International Organization for Standardization (ISO).
The notion of a currency pair was born out of currency exchange transactions within the global FOREX marketplace. The very essence of exchange operations presupposes the purchase of one currency for another; consequently, it is more convenient to present quotations as a ratio of these two currencies, i.e. as a currency pair.
Classification of currency pairs
Depending on the popularity (trading volume), we distinguish:
- Major currency pairs (sometimes called majors);
- Secondary currency pairs (Minors);
- Exotic currency pairs.
1. Due to their popularity, major currency pairs have the highest liquidity and the lowest spread (difference between purchase and sale price). This category includes pairs that include currencies of major world powers such as the USA, Japan, the UK, and the EU countries. Currencies of such countries as Australia and New Zealand (because Forex trading is available 24 hours a day, and the time zone of these countries overlaps the gap between the American and Asian trading sessions). The peculiarity of such currency pairs is either American dollar (USD) or Euro (EUR).
2. Secondary currency pairs also consist of major currencies but do not include the USD or EUR (or they may include either EUR or USD, but the second currency is not a major currency). Thus, they are also called cross pairs. They also have sufficient liquidity, but the spread is usually slightly higher than in major pairs.
- AUD / CAD;
- EUR / AUD;
- EUR / NZD;
- AUD / CHF;
- EUR / CAD;
- GBP / CHF;
- AUD / NZD;
- EUR / GBP;
- GBP / JPY.
3. Exotic currency pairs include currencies of emerging countries (Thailand, Mexico, South Africa etc.), or currencies of relatively small countries (Norway, Denmark, Sweden etc.). EUR, USD or other major currencies are often used as the base currency in these pairs.
- USD / RUB;
- USD / MXN;
- EUR / DKK.
The exchange rate is the price (quotation) of one country's currency unit expressed in another country's currency unit, precious metals or securities.
The exchange rate shows the ratio of one country's currency to another country's currency. In other words, the exchange rate, in simple terms, is the number of units of one currency that must be paid to get a unit of another.
An international exchange rate is determined for all countries' currencies because it is necessary for international settlements at the level of individuals and organizations and at the national level.
Not all currencies, however, can have sufficient supply and demand to permit direct exchange. When it is impossible to buy the currency needed directly, a cross rate is determined - the ratio of two currencies through a third one.
The most common intermediary currency is the U.S. dollar or the euro, as these currencies are freely exchangeable for almost any other currency. The cross rate is determined based on the ratio of two currencies to a third, i.e. two steps must be taken when converting currencies from one to the other.
In the Forex market, each currency is not traded individually but rather about some other currency. For example, we are working with a currency pair consisting of the pound and the American dollar (GBPUSD). Therefore, before trading, we will need to determine how much the euro is now relative to the dollar or vice versa. To do this, we have to take the Forex rates for both currencies today and compare them.
As current forex rates are essential information, many news sites publish them on their pages. Therefore, to trade currency pairs, always keep an eye on exchange rates.
A trading session is when the world's most extensive stock, futures, currency and commodity exchanges provide quotes and online charts for the free buying (Buy) - selling (Sell) of the financial instruments they list.
There are four types of trading sessions: Asian, European, American and Pacific Rim.
European trading session
At the start, the European session overlaps with the end of the Asian session. One hour after the beginning, the London Stock Exchange joins, followed by the Moscow MOEX. Trading involves plenty of currency pairs - these are major world currency pairs:
As well as their crosses:
- EUR AUD;
- GBPJPY, and others.
During the European trading session, the E.U. and U.K. economic data is released. As a result, this is where most of these currency pairs are most volatile.
Peculiarities of the European session
Many leading trading platforms are concentrated in this region. For example, London is one of the largest financial centres in the world. According to the Bank for International Settlements, the volume of equity trading in London is more than 30% of the world.
Many participants and significant transaction volumes make the London equity market the most volatile of all markets.
The high volatility reflects the peak of the day's trading activity, as large bidders complete the day's cycle of restructuring their assets at this time. The European session partially overlaps with the Asian and U.S. sessions. Once significant banks and investment investors have completed the repositioning of their portfolios, they need to convert European assets into dollar-denominated assets in anticipation of the opening of trading in the U.S. The combination of these two restructurings during European trading explains the high volatility during this period.
The highest levels of volatility are characteristic of GBP/JPY, GBP/CHF, GBP/USD.
Trading time frames
A time frame is a method of grouping quotations together to display them more efficiently on a chart.
There are many varieties of time frames in forex trading, but the most prevalent among them are the following:
- M1 (one minute);
- M5 (five-minute);
- M15 (fifteen-minute);
- M30 (thirty-minute);
- H1 (hourly);
- H4 (four-hour);
- D1 (daily);
- W1 (weekly);
- MN (monthly).
The time frame marking indicates the amount of time in a single candle. Therefore, the trader chooses the more extensive the timeframe, the greater the time interval includes one candle on the chart.
Which time frame is better?
There is no definite answer, as it depends on different factors, such as your trading system and approach to trading in general. For example, some people trade intraday and make lots of trades a day, some make 1-2 trades a day, and some produce only one trade a week.
Despite such ample space to choose from, we still recommend you to select time frames starting from M30 and up. As an intraday trading timeframe, the M30 is no worse than other lower time frames. Why?
The main reason is a significant influence of so-called "market noise" on the price on small time frames. Market noise is a large number of small trades in a market that has a chaotic effect on price in the short term. The downside of market noise is that it is entirely impossible to predict its impact on the market.
Usually, on the M1 timeframe, the market is almost always under the influence of market noise. This market state is easy to spot on a chart: there's an on-trend, and the price is moving chaotically and erratically.
For example, on the H1 timeframe, the trend is immediately visible. It is even possible to mark the borders of the descending price range on the chart. Thus, it can be concluded that the larger the time frame, the more precise signals can be obtained by analyzing the graph of the currency pair.
Of course, this does not mean that we should work only with the highest time frames (D1, W1 or M.N.). Such time frames are suitable for very experienced traders who estimate the market with the help of fundamental analysis and can wait for the right moment to make a deal for weeks or even months.
Time frames for beginners
The time frames of M30, H1 and H4 are suitable for daily trading for a beginner. Technical analysis figures and indicators give adequate information about these time frames, and you do not need to wait for a signal to open the position.
Another critical advantage of these time frames is that a trader can determine the strategy's profitability in a short time on a demo account, and therefore the practicality of its use in practice.
Also, you can use several time frames together, according to the market situation. For instance, you may decrease the time frame when important economic news is published or increase the time frame when the market is in a prolonged flat state.
Otherwise, it would help if you did not get hung up on the choice of timeframe, as you are likely to find the best one for you with time and practice.
Pound Dollar Currency Pair (GBP/USD)
GBP/USD is one of the best known and most liquid currency pairs on the forex market. It is the third most traded currency pair globally, following only EUR/USD and USD/JPY with a trading volume of 14% of the world volume. The stable financial situation of the United Kingdom and developed capital markets makes this currency pair with the British pound very popular.
Large price swings have contributed significantly to the popularity of GBP/USD. However, one must remember that higher risks accompany higher profits. This currency pair is one of the most volatile. Nevertheless, many Forex traders choose this pair as their favourite as they find plenty of opportunities and information online for analysis regarding this pair.
Peculiarities of GBP/USD trading:
- The leading and most meaningful trading partner is the United States. This country accounts for the bulk of U.K. trade, so the trade balance between these countries has a relatively strong influence on the GBP/USD exchange rate;
- This currency pair is quite volatile, which allows scalpers to earn good money. The daily fluctuations can go up to 150-200 pips per session;
- The peak of trading activity falls on the European and American trading sessions, the quietest during the Asian trades;
- The earnings of the carry trade strategy are minimal due to the approximate parity of the U.S. and U.K. central bank interest rates.
First we need to know the basic parameters of the currency pair. So, the characteristics of GBP/USD:
- Maximum activity is observed during the European and American sessions;
- Low activity during the Asian session;
- High volatility, the currency pair is characterized by jumps of 120 pips;
- Inverse correlation with the pair Euro / pound.
There is also a correlation with USD/CAD. As a rule, when the pound rises against the dollar USD/CAD falls. In this case there is an inverse correlation, but it is not always evident.
By the way, it is a mistake to think that GBP/USD repeats the movement of EUR/USD. In fact, these pairs are virtually uncorrelated. It should be recognized that coincidences in the movements of these assets occur frequently.
However, the exchange rate of the pound to the dollar can change very sharply, when there is news from the world of economy, which is not the case with the euro-dollar exchange rate.
Correlation is a weak indicator, which often fails inexperienced traders. Nevertheless, the correlation between currency pairs should be known and taken into account, as it often turns out to be correct.
Assets interact with each other and influence each other's movements. But even the most experienced trader cannot always predict how allied or opposing assets will move.
Factors affecting the price of a currency pair
Many factors affect the price of a currency pair, in our case GBP/USD, hereafter we will try to highlight the leading and most important of them. Still, we must remember the correlation, strong economy - strong pound, weak economy - weak pound:
- Monetary policy summary;
- Change in retail trade volume;
- Change in GDP;
- Change in industrial output;
- Visible trade balance;
- Bank of England critical interest rate decision.
The factors are numerous. We have cited the main ones. The most crucial thing in trading is to be in the "trend", read the news and keep an eye on the news bulletins. You will find all the data on the economic calendar in our economic calendar.
How to start trade GBPUSD in Qatar?
To start trading currency pairs, first, choose a reliable broker. This fact is vital for successful trading.
The next step is to register. Registration is a quick process. First, you have to fill in some of your personal details. You will also need to confirm your consent to the processing and storage of data and accept the service agreement, which will spell out the responsibilities of both parties. Then, your password is generated automatically and will be sent to your e-mail or mobile SMS. After that, you will be able to change it later in your personal trader's cabinet.
Trading on a demo account is an easy way to learn how to trade efficiently without risking your own money. So be sure to take advantage of it.
Once you have completed the training, you can open a real account with a minimum deposit. You can make your deposit by debit or credit card, bank transfer or e-wallet. The same methods can be used to withdraw the money you earn.
Getting and selling currency pairs is one of the ways modern traders earn money. Its essence is simple speculation on the differences in currency rates. Buying is done in order to sell later at a higher price, and marketing, respectively, in order to buy back later at a lower price. So it would help if you always tried to study the subject thoroughly, read the news, and take into account the risks. That way, you will achieve your goals.
Good luck and have a great trading time!