Forex Pairs: The Pound Sterling, the “cable”

The pound sterling is probably the oldest currency in the world, having references in the year 775 AC. By that time, there were no central banks, nor fiat system, and currencies were of silver and gold.

Pound Sterling history

It was not until 1853, when the first banking notes were introduced. From that moment on, the current system has been built, with the abandonment of the Gold Standard as its main act.

Despite the fact that the pound sterling is a fiat currency, it is one of the most stable in the World.

The pound sterling has not the stability of a Gold Standard, but given the current state of many world currencies, we may conclude that it is not nearly as bad as many of its competitors.

Next to the dollar, the Swiss franc, the yen, the euro, the Australian dollar and the New Zealand dollar, is one of the most stable currencies in the World.

Currencies like the Turkish lira, South African rand or Mexican peso are not as “efficient” for capital keeping purposes in the last thirty years. Cases like the Venezuelan bolivar or the Zimbabwean dollar are a special case.

The pound is known as the sterling, or pound sterling, but it is most known in the trading community as “cable”, which is due to the fact that currency quotes in the XIX Century, were transmitted through transatlantic cable.

The pound is the fourth most traded currency in the World, after the dollar, the euro and the yen. This is because the pound is the “house” of what is, perhaps, the capital of world derivatives, London, known as “the City”.

Despite the growing size of socialistic policies and the welfare state, Great Britain has managed to maintain its country as one of the best for “free trade” and capital protection.

The UK is one of the safest countries in the World for businesses and capital. That excellent legal certainty conditions have made London the World capital for currency trading. So it is not difficult to recognize the importance of the pound in the world capital markets.

Day trading, swing trading and the GBPUSD

The GBPUSD (pound/dollar) is one of the most trader forex pairs in the World, just behind the EURUSD and the USDJPY.

That makes the GBPUSD one of the pairs with better conditions for trading, whether it is day trading or swing. This is, without a doubt, one of the favorite forex pairs for day trading.

Besides, it is one of the favorite pairs for swing trading strategies.

This is because the pair offers good spreads and an acceptable volatility.

 

 

GBPUSD

 

GBPUSD spread

In terms of spread, it is an excellent pair to do day trading.

We can find spreads of 2 and 3 pips (counting on commissions as well) normally and moves of 100 plus pips very often. Other pairs that move more pips, but have spreads of 10 pips, are less attractive for the scalper.

As for swing or trend trading, it is an interesting pair, but not as much as many people think.

From my point of view, it is not one of the best pairs to do swing trading. We can find better trends in the GBPJPY, AUDUSD, and even in the EURUSD, although many analysts say that the GBPUSD has more volatility, with which I do not agree.

It is true that the GBPUSD moves more pips per day than the EURUSD, but it is not true that it is more volatile. In that respect, the Mexican peso would have ten times more volatility because it moves one thousand pips per day normally. But, the reality is that we should not measure volatility by the number of pips a currency moves, but for its movement in terms of percentage. And, in that case the EURUSD moves more than the cable.

I have also found that the EURUSD is better for trend trading.

GBPUSD volatility

In fact, the GBPUSD is one of the pairs with less intraday volatility in the markets.

There are a lot more of pairs with more volatility, including all the yen pairs, and the oceanic ones.

And that was about intraday volatility, the one day traders care about.

For swing or trend traders, it is more important the “weekly” or “monthly” volatility, in which we would measure how much a pair moves in a year or so. In that case, I have found that the EURUSD, AUDUSD, NZDJPY, CADJPY, and more, have a lot more long term volatility than the GBPUSD.

That, being irrelevant for day traders, is of a very big importance for trend traders. The difference between a bear market of 20 and one of 50% is of the utmost importance.

GBPJPY, GBPAUD, GBPCAD, GBPNZD, GBPCHF

The pound can boast of being the most “expensive” currency of all the great pairs. This is because it still has the highest value compared to other currencies. For instance, the GBPAUD quotes at 1.92 while the AUDUSD does at 0.78. We need almost to AUD dollars to buy one pound. Although we will see how many years the pound can keep this situation since I do not think that it will maintain that status in the long term, against, for instance, the AUD, the NZD, CHF, or the USD.

GBPJPY investing

Of all the GBP pairs the one that is best for swing traders is the GBPJPY, which by the magnitude of its moves and its good liquidity, gives us good conditions to trade.

 

GBPJPY

 

One of the most popular GBP pairs, the EURGBP, offers excellent trading conditions, but from my point of view is not very interesting for medium term trading. It is similar with what happens with the USDCAD, which is because since those countries are close neighbors, and volatility between them tends to be not so high. Not as high as against the yen for instance.

My second favorite GBP pair for swing trading is the GBPAUD, which offers us good trending moves.

 

GBPAUD

 

GBPNZD investing

Other interesting pairs would be the GBPNZD and the GBPCAD, although those do not offer the best possibilities. The spread in the GBPNZD tends to be very high in most brokers. While the GBPCAD is not very good for trend traders since its trends are quite erratic.

Another interesting pair would be the GBPCHF, which has given us some of the best trends in the past decades, although the CHF is, in general, quite a volatile currency against everybody. Although we should not forget the sorrowful event that took place on January 15th of 2015, known as the Forex Black Thursday, in which many people went bankrupt in matter of seconds.

Pound Sterling trading

We should remember that when we are trading any currency, we should be aware of the economical news that is given every day by the respective governments.

We should, then, follow the news of the Bank of England and the English Government.