Characteristics of the currency pair GBP/USD
What are currency pairs?
A currency pair is a combination of two currencies that form a ratio of those currencies. The ratio shows how many units of one currency are worth a division of the other currency.
A currency pair is made up of a base currency and a quoted currency.
A distinction is made between major (major) currency pairs, cross-currency pairs (cross rates) and exotic currency pairs.
Currency pairs are an international exchange market tool, a ratio between two currencies that form an exchange rate that indicates how many units of one currency must be paid for a unit of another currency.
A currency pair is a Forex instrument that is used to make spot trades in currencies. For example, EUR/USD traders usually trade the Euro against the USD. The Forex market has a daily turnover of about $4 trillion. Therefore, it ensures high liquidity in popular currency pairs.
The currency pair Pound-US Dollar shows how much USD to pay per pound.
Thus, we can conclude that the currency pair forms an exchange rate.
Major currency pairs
Major currency pairs have an optimal combination of criteria and allow investors to be sure of profit. Low risk is compensated by the average rate of return and vice versa. These pairs include EUR/USD, GBP/USD, USD/CHF, USD/JPY, USD/CAD.
EUR/USD accounts for 29% of forex turnover, USD/JPY for 18% and GBPUSD for 15%. Just three currency pairs accumulate 62% of trades. They are informally called "majors".
It is essential to understand what causes the change in prices of currencies about each other and the base currency.
There is a constant struggle between those who buy trades and those willing to bet on sell in the international forex market. Of course, this is a primitive theory, but it is not groundless.
First of all, it is essential to note that in the currency market, the chart price for a currency pair is formed not by supply and demand, or rather, not only supply and demand.
Then you will notice that the formation of the price of currency pairs depends on many factors.
Here are some of the factors that, one way or another, influence the price formation of a currency pair:
- Influence of news on the movement of a forex pair chart. What you look at in the events calendar certainly affects the price. Still, the interpretation of news data, such as forecasts and past values, may be interpreted differently by different analysts.
- Also, the economic and political situation in the country of the currency pair concerned influences the price of currency pairs. Also, at this point, it is appropriate to add the impact of events and various incidents of the country of the currency pair traded on the forex market. In general, the result of fundamental analysis on price formation.
- Personal opinion: the history of quotes, or rather, the historical analysis of the price data of a currency pair and the patterns that are found affect the behaviour of the currency in the future.
- Influence on the price formation of the currency pair by technical analysis. Of course, this aspect is very controversial, but we cannot ignore this factor.
- The influence of neighbouring currencies on the formation of the forex price of the currency pair in question and the fundamentals of the major currency pairs, i.e. the impact of the American dollar on the other currencies. This may also include the varying effects of indices in the base currency.
- Additionally, we can point out the influence on price formation by big players who try to artificially manipulate the price ratio of one currency to another. Again, there is no doubt that such an effect occurs, but the question of the scale of the forex players and the way they influence a particular currency pair is also open here.
Therefore, when you decide to open a sell or buy position, you should consider these nuances and price formation criteria of currency pairs in the international Forex market.
A trading session is the opening hours of the world's exchanges and trading venues worldwide, during which orders are processed and announced, and transactions in financial instruments and securities are executed. A trading session is a fixed time of official operation of stock exchanges. During trading sessions, not only trades are completed, but also reports are published.
Trading volume and volatility change for different currency pairs according to the movement of the clock's hands. You can trade more efficiently if you know which currency pairs are in focus at any given time. The time of day factor plays a vital role when trading currencies.
As the currency market operates 24 hours a day, a trader can keep a close eye on every market movement and react to it at any time. Therefore, to develop a successful trading strategy, one should consider the changes in the market activity of different currency pairs, depending on different periods. That will allow you to maximise trading opportunities during the hours you are trading.
In addition, liquidity in currency pairs varies according to geographic location and macroeconomic factors. Therefore, knowing what time of day a currency pair has the most extensive and narrowest trading range will allow you to choose the instrument most suited to your trading strategy.
Trading high volatility currency pairs can be profitable, but it is important to remember also that it carries an increased risk.
Abrupt market movements often trigger stop-losses and incur losses.
Types of trading sessions
So, there are basic types of trading sessions:
- Pacific trading session.
Trading Time (UTC):
22:00 - 06:00 winter;
21:00 - 05:00 summer.
- Asian trading session.
Trading time (UTC):
00:00 - 09:00.
- Intersection of Asian and European sessions.
Trading time (UTC):
00:07 - 10:00.
- The Middle East and Africa.
Trading Hours (UTC):
06:00 - 12:00.
- European trading session.
Trading hours (UTC):
08:00 - 16:30 (UTC);
07:00 - 15:30 summer.
- Intersection of European and American sessions.
Trading Hours (UTC):
14:30 - 16:30 winter;
13:30 - 15:30 summer.
- American trading session.
Trading hours (UTC):
14:30 - 21:00 winter;
13:30 - 20:00 summer.
Trading time frames
What is the time frame?
A time frame is a time interval for grouping price quotations of any instrument to create the minimum element of a price chart. Minimum elements, most often bars, are used to display price movements.
Types of time frames
Standard timeframes include:
- 1 minute - M1;
- 5 minutes - M5;
- 15 minutes - M15;
- 30 minutes - M30;
- 1 hour - H1;
- 4 hours - H4;
- One day - D1 or Daily;
- One week - W1 or Weekly;
- One month - MN or Monthly.
How should you choose a suitable time frame for trading?
The choice of time frame is crucial for traders. It depends on the trading style and the number of trades you make. Short term movements can be seen on small, lower time frames, long term - on higher time frames.
Forex traders have the following division of timeframes, depending on the type of trading:
- M1 to H1 timeframe - intraday trading or day trading, as well as scalping. A large number of transactions can characterise this type of timeframe during the trading day. As a rule, all transactions are closed the day they are opened and are not carried over to the next trading day. It is not recommended for beginners because of the high load and necessary speed of making the decision.
- Timeframe varies from H1 to H4 - medium-term trading. The lifetime of trades varies from several hours to several days.
- Timeframe H4 to MN - long term trading. The deals can be opened for several weeks.
When choosing a timeframe for trading, you should consider that signals and deals will be more frequent on low timeframes, but, as a rule, a profit on one deal consists of some points. In addition, it should be noted that trading on low timeframes requires the constant presence of the trader at the terminal and is associated with a high emotional load and increased risks.
Trading on higher time frames is characterised by a smaller number of trade signals and open deals. Still, the profitability of one deal will be much higher than when trading on lower time frames.
Why are time frames so important in trading?
The intelligent trader never decides to enter the market in only one timeframe. Instead, he analyses the dynamics of the currency pair on several timeframes. The trader opens a deal only when a signal to enter the market (indicator readings, support/resistance level, the processing of a technical analysis pattern) is confirmed on all timeframes.
Many informative indicators are developed for the comfortable analysis of different timeframes, displaying price indications (trend direction, trend strength) from different timeframes. In addition, there are also Forex indicators working in a multi-frame mode, which means they show the signs from the chosen timeframe. Such indicators, as a rule, have the prefix MTF (multi-timeframe).
A currency pairs trading strategy is a set of specific techniques and rules, an algorithm that a trader must follow, reacting to signals in time or fully automating trading.
Many traders sincerely believe that a system that brings someone profit will be effective. Indeed, tried and tested methods and programs, as a rule, do not produce false signals, do not contain mistakes in the algorithm, are well studied and tested, but they do not guarantee one hundred per cent success either.
A forex trading strategy is a business tactic, a model for determining when to open and close trades. There is no single opinion on which scheme is ideal for beginners. Each person is different, has specific skills, abilities. For example, one person is easily influenced by technical analysis, and the other one uses indicators and charts.
When choosing an investment model, beginners should be guided by their own preferences. For example, a strategy with a lot of terms, indicators, complicated formulas will be challenging to understand. If a Forex user does not understand the workings of a particular analyzer, the investment will be wrong and lead to losses. You should not do away with indices completely. You should preferably choose two or three as a basis and get acquainted with their function in detail.
This strategy is the most straightforward Forex strategy, which any beginner can handle. It works on times of five and fifteen minutes. The scheme is based on the fact that any currency pair produces a significant jump in the quotation at least once a day. The Bollinger Bands and RSI indicators are used in the analysis. The latter should be set on a period of six and the levels 20.80.
The best time to trade on this tactic is when the big players enter the exchange. They dictate the terms of the trend formation, and the rate movement is most accurately reflected on the charts. Such phenomena occur in the European, American sessions.
The analytical scheme works on predicting the frequency of reversals. If the rate direction changes with an enviable regularity, it means that the market is actively trading. If the trend is directed downward, traders should expect several points of falling rate. Even though the currency price moves in one direction, there are slight quotation fluctuations. This strategy is based on, and it can be backed up with a decent amount of capital.
You should start with a small amount, then the amount will gradually increase. Be sure to fix at least ten candles, use several indicators. It would help if you did not forget about controlling the news feed because events in the international market, politics, economy directly affect currency trading.
Features of the currency pair GBP/USD
The currency pair GBP/USD (Great Britain Pound) is one of the most traded and popular currency pairs on the Forex market. GBP stands for Great Britain Pound. The pound is the official currency of Great Britain and is the oldest currency that is still freely used in cash transactions and large financial transactions.
The GBP/USD pair attracts traders because it has high volatility (sharp and robust movements). Therefore, it is not surprising why piping is so popular when trading this pair. Most traders agree that this pair repeats the actions of EUR/USD. There is some truth in this statement, but it often happens that the pair's movements are fundamentally different. So be very careful with this pair.
To begin with, we need to know the basic parameters of the currency pair. So, the characteristics of GBP/USD are as follows:
- Maximum activity is observed during the European and American sessions;
- The minimum activity is observed during the Asian session;
- High volatility, the currency pair is characterized by jumps of 120 pips;
- Inverse correlation with the euro/pound pair.
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 visible.
Dependence on political and economic developments
GBP/USD changes under the pressure of various political and economic factors.
Therefore, a trader needs to keep track of all the latest news to get a rough idea of where and how the exchange rate of the asset will move. In addition, the currency pair is influenced by factors such as:
- The interest rate at the leading English bank;
- Consumer/manufacturer price index (inflation in general);
- The GDP (Gross Domestic Product or the market value of services and goods) in the US and England.
These are just three factors that influence the Pound / USD exchange rate. You should watch the news on the economic calendar covering the UK and the USA and Canada and the Eurozone.
Political events can also have a substantial impact on asset values.
GBP/USD is probably the most 'malleable' pair, reacting to the slightest changes in the territories of specific countries. That is the main feature of the pound/dollar pair, which every trader should consider.
Remember to have a proven trading system to trade GBP/USD successfully.
How to start trade GBP/USD?
If you desire to start trading the currency pair GBP/USD, choose the platform on which you will make future trades. The platform must be reliable and fast. To begin trading, register on the website by providing the required personal information. This is so that you can be identified.
A demo account
Many trading platforms offer the opportunity to open a demo account initially. For example, many Forex trading platforms provide you with an initial demo account, so you can start trading without any losses. You will be able to try out different strategies and see their effectiveness.
A real account
If you feel confident and want to trade for real, you have to open a real account with a minimum deposit.
Trading is an incredible journey into a new world, a way of life that will help you become successful. Try it and earn. Everything will work out for you!