HOW TO TRADE GBP/USD

Table of Contents

How to Trade GBP/USD .................................................................................................................... 3

The Importance of Liquidity in Forex Trading ................................................................................ 3

The History of Forex ....................................................................................................................... 4

Why Trade GBP/USD?.................................................................................................................... 4

When is the Best Time to Trade GBP/USD?................................................................................... 5

GBP/USD Fundamental Analysis – What to Look For .................................................................... 6

GBP/USD Technical Analysis – Charts Patterns and Indicators ..................................................... 7

Trader Discipline and Psychology ................................................................................................... 7

How to Trade GBP/USD Summary .................................................................................................. 8

Disclaimer .......................................................................................................................................... 9

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HOW TO TRADE GBP/USD

GBP/USD: How to Trade Sterling Against the Dollar

Pound Sterling against the US dollar (GBP/USD) is the third most traded forex pair in the world and
accounts for just under 10% of global foreign exchange turnover. The pair – also referred to as
‘cable’ – enjoys high levels of liquidity and tight bid-offer spreads making it easy and cheap to trade,
especially during London and US trading hours. This liquidity means that a range of traders, from
individuals through to large corporations, can easily take an outright position, or hedge a US dollar
or Sterling obligation, without disrupting the market.

The Importance of Liquidity in Forex Trading

Before 1971, the US dollar, Pound Sterling, and an array of other currencies had their value pegged
to gold – Bretton Woods – as the world demanded economic stability to rebuild post-war. This
changed on August 15, 1971, when the US dollar, and a range of other gold-pegged currencies,
left the Bretton Wood system and became free-floating currencies.

Bank for International Settlements (BIS) – FX Volume/Liquidity

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HOW TO TRADE GBP/USD

Since then, these currencies have been quoted against each other with each pair moving on
country-specific drivers – including interest rates, growth rates, and inflation - increasing liquidity
flows.

The History of Forex

GBP/USD has nearly five decades of history as a free-floating currency pair, and combined with
being a quote on two of the world’s top five economies, is regarded as a major currency pair with
liquidity provided around the clock. This history and liquidity help provide a vast array of data and
prices, making both fundamental and technical analysis clear and easy to use.

Sterling vs. US Dollar (GBPUSD) 1975 – November 2020

Why Trade GBP/USD?

GBP/USD is one of the best currency pairs to trade in the foreign exchange market due to the vast
pool of liquidity available, the – normally - stable economic backgrounds of both countries, and the
ultra-tight trading quotes available 24/7 across different time zones. This gives traders the ability
to deal with a minimum of unexpected political risk when compared to commodity and emerging
market currencies, leaving the market price a true reflection of underlying economic conditions
without any political premiums built-in. With a trading history of five decades, GBP/USD has a large
pool of data, long-term historical trends, and price action that can make technical analysis accurate

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HOW TO TRADE GBP/USD

and trading decisions easier. Due to this liquidity, GBP/USD can also be traded in different forms
including spot and forward cash prices, options, and CFDs, again adding to the pair’s allure for
traders across a range of markets.

In Forex trading, there are risks of loss, and market participants should carefully consider these
risks.

To help you decide what kind of forex trader you are and what matters to you, we have an
interactive quiz which will help you to better understand your trading make-up.

The DNA FX Quiz – What Kind of Forex Trader Are You?

When is the Best Time to Trade GBP/USD?

While GBP/USD is one of the most liquid currency pairs in the market, there are certain times during
the day that liquidity is higher than at other times. The UK ‘trading hours’ normally run from 07:00
GMT until around 16:30 GMT as the UK takes over from Asia before handing over to the US later in
the day. During these hours there are additional pockets of volatility including but not exclusively,
when either the UK or US release important data or changes to monetary policy, when either US
or UK central bankers and policy makers speak, and at 16:00 GMT when the daily benchmark
foreign exchange rates (FIX) are set.

GBP/USD One Hour Chart with Tick Volume Data via @IG.com

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HOW TO TRADE GBP/USD

One of the many attractions of trading GBP/USD is that there are potentially market moving events
and releases throughout the day, from both the UK and from the US, with ample liquidity
surrounding these events.

GBP/USD Fundamental Analysis – What to Look For

Traders should be aware of the economic and political background in both the US and the UK
before trading GBP/USD. This should include levels of interest rates, inflation, and growth rates as
well as consumer behaviour and spending patterns, and trade flows in and out of the country.
Fundamental analysis should also include other ‘big picture’ analysis including a changing political
or trade landscape, for example, Brexit in the UK, a new administration in the White House in the
US, and the monthly PMI sentiment release. Fiscal policy is also very important and traders should
closely monitor policy papers and speeches made by both governments.

DailyFX Economic Calendar – High Importance UK and US Data Releases (Example)

Forex Fundamental Analysis on DailyFX offers a complete primer on how central banks impact the
forex market, and how to use news and key economic events to make trading decisions.

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HOW TO TRADE GBP/USD

GBP/USD Technical Analysis – Charts Patterns and

Indicators
Technical analysis is the use of past price movements and patterns to help forecast future price
movements. GBP/USD is particularly well suited to technical analysis as the pair have a long history
and trade on tight bid-offer spreads to allow accurate and reliable price analysis. A wide variety of
technical analysis techniques can be applied to the pair and traders need to be comfortable using
different techniques and back test them before using them. Some of the most common
techniques include Candlesticks, Trendlines, Relative Strength Index and Moving Averages:

Technical Analysis – Tools to Get You Started

GBP/USD Price Chart with Moving Averages and RSI

Chart via @IG.com

Trader Discipline and Psychology

Trader discipline and the understanding of what you are doing and why is a very important element
of trading and must rank alongside fundamental and technical analysis as areas that traders need
to fully understand. Traders should to know how to use stop losses and leverage correctly and how

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HOW TO TRADE GBP/USD

to make sure their risk/return ratios give them the opportunity to make money and curb losses. In
addition, being in complete control of your emotions and biases is a must for any trader, especially
when markets become more volatile.

Introduction to Trading Psychology and Discipline

How to Trade GBP/USD Summary

• GBP/USD is one of the most consistently liquid and tradeable foreign exchange pairs in the
market and should be on every trader’s radar.

• Both central banks are active in keeping the market abreast of economic conditions; fiscal
policy is also clearly communicated in a timely fashion.

• Technical analysis is in-depth and widely available, while the pair do not suffer from
idiosyncrasies seen in emerging market currencies.

• GBP/USD is particularly well suited to technical analysis as the pair have a long history.

• A comprehensive approach that incorporates both fundamental and technical analysis can
help GBP/USD traders develop a robust strategy.

• Developing a comprehensive trading strategy and following sound risk management

techniques are critically important

• Open a demo trading account with IG

• Additional trading resources

Learn to Trade with a free

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demo account from IG

Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all
investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances.
Forex trading involves risk. Losses can exceed deposits.
We recommend that you seek independent advice and ensure you fully understand the risks involved before trading.

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HOW TO TRADE GBP/USD

Disclaimer

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Any opinions, news, research, analyses, prices, or other information contained in this report is
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High Risk Investment

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all
investors. The high degree of leverage can work against you as well as for you. Before deciding to
trade foreign exchange you should carefully consider your investment objectives, level of
experience, and risk appetite. The possibility exists that you could sustain losses in excess of your

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HOW TO TRADE GBP/USD

initial investment. You should be aware of all the risks associated with foreign exchange trading,
and seek advice from an independent financial advisor if you have any doubts.

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