The forex pair, British pound to the United States dollar (GBP/USD), is popularly known as “the cable”. It is one of the world’s oldest and most actively traded forex pairs in the foreign exchange market. The history of the GBPUSD tracks back to the 19th century when sending Pound exchange quotations via underground cable across the Atlantic was common. Financial entities on both sides of the Atlantic needed to regularly convert British pounds to US dollars or vice versa, because of the close relations and extensive trade agreements between the UK and US.
The abundance of liquidity was one of the major reasons the pair became popular among retail traders, and it continued enjoying its supremacy even after Brexit. In this piece, we will discuss the reason behind its popularity and how you can invest in GBP/USD. We will also list the factors you must consider before signing up with GBP/USD brokers and explain how to open a GBPUSD trading account and invest your funds. A brief review of account types, spreads, leverages, and trading platforms offered by different brokers will also be a part of this review.
Why is GBP/USD so Popular?
Due to the high volume of trades involving this pair, GBP/USD brokers offer low spreads and excellent liquidity to clients. In addition, the pair’s implied volatility is more significant than the other major FX pairs, allowing traders to speculate over its prices in both directions. Notably, Britain’s interest rates are relatively higher among the world’s most important reserve currencies. Therefore, those wishing to hedge their currency risk can benefit from holding British pounds in the money market which is yet another reason market participants prefer trading it over other currency pairs.
Moreover, the pair’s appeal stems from its constituent currencies, which stand for two of the world’s most powerful economies. Notably, global markets feel the effects of political and financial decisions made in the US and UK, leading to the pair being the point of concern for traders worldwide.
Ways to Invest in GBP/USD
GBP/USD brokers offer multiple ways to invest in the cable. You can either day trade the pair to benefit from its high volatility or hold the pair over the long term to earn a price appreciation yield. Buying GBP/USD and holding is yet another option to invest in the pair. Below we discuss each of the investment strategies one by one.
Day Trading GBP/USD
Day Trading refers to buying and closing positions on the same day. In their pursuit of daily profits, many traders focus on day trading the GBP/USD forex pair in the best day trading brokers because of its high liquidity and global prominence. The foreign exchange market is accessible around the clock, but that doesn’t make trading all day a good idea.
There are times when day trading the GBP/USD makes more sense than other times due to the high degree of volatility required to achieve gains above the spread or commission. The best time for day trading is between 8am and 6pm UK time. Please note that the US market opens by 2:30pm UK time. If you trade at other times, you might find the market to be less volatile and you might struggle to find low GBP/USD spread during those timings.
When looking for entry and exit points in the market, traders employ both technical and fundamental analysis. Day traders don’t have to pay swap fees or risk losing money due to fundamental changes that could impact the value of a pair overnight.
You can also enter a position on GBP/USD and keep it open until the market moves in your favour. However, the economic outlook for the British pound continues to worsen as a result of the elevated and still growing level of inflation in the UK, the cost-of-living crisis that is taking root, the slowing growth, and the turmoil in the debt markets as a result of the most recent budget. Meanwhile, demand for safe-haven assets and speculations that the US Federal Reserve (Fed) would raise interest rates are helping to prop up the value of the US dollar. Therefore, holding GBP/USD might not work as much as you anticipate.
Buy and Keep the Actual Currency
Buying and keeping the actual currency is yet another form of investing with GBP/USD brokers. The United Kingdom’s monetary policy is in disarray at the moment, and rising interest rates will only help the United States dollar gain strength in the coming years. Therefore, it is best to put away as much money in US dollars as you can while you wait. It is likely that it will be going down until either the interest rates in the USD come down or the Bank of England (BoE) expresses greater freedom.
Pros and Cons of Trading GBP/USD
- High Volatility
- Abundance of Resources
- Rapid Movement
- Super Reactive to News Releases
Risk Associated with Trading GBP/USD
Numerous factors make trading the GBP/USD pair attractive. However, investors should be wary of the following risks associated with trading GBP/USD.
The exchange rate between the British pound and the US dollar is very volatile. That’s fantastic for traders who can make quick decisions, but it also means that losses can mount rapidly. You’ll need self-control and sound risk management practices to combat this.
False signals and fake breakouts are commonplace in the GBP/USD due to the pair’s high volatility. Less-seasoned traders are more vulnerable to ambiguous trends. Experts argue that newcomers to the forex market should better concentrate on a different currency pair rather than sticking to the GBP/USD.
Traders confront a formidable hurdle, even if they have access to the monthly or yearly forward rates. That’s because of the increasing prevalence of smart trading algorithms in the market. Because of this, weekly forecasts and annual charts are no longer sufficient for maintaining an advantage.
Factors to Consider when Choosing Your GBP/USD Brokers
While every other online brokerage firm claims to be legitimate, it becomes difficult to identify a genuine and competitive GBP/USD broker. Let’s take a look at a few factors that can help you find the best broker to trade GBP/USD.
Regulatory compliance is one of the essential factors that you must carefully check while signing up with GBP/USD brokers. Several financial intermediaries claim to hold regulations despite having no regulatory oversight. Therefore, you must confirm whether your selected broker is regulated by a respected regulatory authority like NFA, FCA, ASIC, etc. Though regulation doesn’t guarantee the safety of your funds, at least you have the legal right to recourse if the broker breaches the code of conduct.
Try to sign-up with a well-reputed broker. Online trading Brokers with a good reputation are likely to remain fair and transparent compared to those with a lousy investor reputation. You can read clients’ feedback on social discussion platforms like Reddit and Quora. You can also check the credibility rating with third-party review websites like Trustpilot, Forexpeacearmy, etc.
GBP/USD Broker’s Fees and Commission
There have to be some means of compensation for brokers, so expect to pay a set fee and commission for trading your selected financial instrument, like GBP/USD. Some brokers charge their clients a commission for holding positions overnight, while others also apply account management and currency conversion fees. Therefore, it’s in your best interest to do some comparison shopping for a few GBP/USD brokers so you can know the kind of fees and commission they charge.
Spreads are the standard means of compensation for brokers. Some GBP/USD brokers charge fixed spreads, while others may have a variable spread charging policy. You may find a few brokers with zero-spread offerings. However, they often have higher commission costs in place. Since the GBP/USD pair is one of the most volatile pairs, you are likely to be quoted lower spreads for trading it. However, you should confirm with the broker if it employs fixed or variable spreads to assess your expected trading cost reliably.
Leverage refers to margin-based trading where you borrow funds from your broker to open sizable positions with limited investment. While some GBP/USD brokers offer a leverage of up to 1:1000, others may only restrict their clients to trade GBP/USD using a maximum leverage of up to 1:30. It also depends on the regulation of your broker and your respective jurisdiction. Typically, clients based in countries with strict regulatory oversight, like Europe, Australia and the UK, may have access to limited GBPUSD leverage, as stated above.
GBP/USD Trading Platforms
A trading platform is an investor’s window into the market and also a point of entry. As a foreign exchange trader, you must ensure that your select broker’s trading platform provides access to the technical and central analytical tools you will need. While some brokers offer you to trade GBP/USD on MT4, others may provide you access to their custom-built trading platforms. As an added precaution, open a demo account with your selected broker and test the convenience of entering and exiting positions using the offered trading platform. Finally, when you’ve settled on a broker you trust, you’ll be able to devote more resources to crafting a winning forex strategy.
Brokers allow their clients to fund their accounts with various methods, including a debit card, credit card, Skrill, Neteller, PayPal, or bank transfers, all from the comfort of their homes. However, there is no standard policy across GBP/USD brokers regarding deposits and withdrawals. Some brokers do not charge their clients for deposits and withdrawals, while others may have some associated fee for releasing funds via a specific payment method. Therefore, check the associated cost for each payment method and select the cheapest one.
The foreign exchange market is always open during the weekdays. That’s why you need your GBP/USD brokers to offer round-the-clock customer support. Sometimes financial losses can result due to having insufficient information provided to the concerned customer service department. For instance, you wanted to confirm if the broker offers negative balance protection or guaranteed stop loss; and you also opened a position on GBP/USD. By the time your broker confirms the unavailability of GSLs, you might already have incurred an excessive loss due to slippage issues. Therefore, you should call, email, or use live chat with a broker to see how responsive they are to client inquiries before signing any paperwork.
What Trading Platforms/Apps Can you Use to Invest in GBP/USD?
You can use various trading platforms to invest in GBP/USD. Clients typically prefer using the industry’s most renowned trading platforms, MetaTrader 4 and MetaTrader 5, powered by MetaQuotes. However, some brokers also offer custom-built proprietary trading apps for the same. Let’s quickly review each type of platform below.
Trading GBP/USD on MT4 Trading Platforms/App
MetaTrader4, commonly known as MT4, is a widely used trading platform. Besides having a user-friendly interface, the MT4 trading platform has all the necessary trading tools and indicators required for a meaningful trading experience. Almost all forex and CFD brokerage firms have this platform as a part of their offerings.
Three distinct trade execution modes are available on MetaTrader 4, while it supports six different order types (four pending, two stop, and a trailing stop order) to trade GBP/USD. Trading orders can be sent quickly and easily from the chart using the one-click trading feature. On top of this, you can find the best times to enter and exit the market with the help of the tick chart function.
Compared to other trading platforms, MT4 is known to have fewer bugs. Moreover, the clients can employ hedging techniques using the MT4 trading platform, which is not the case even with its newer version, MT5. Though hedging can help weather any storm, it’s important to remember that it can’t and won’t mitigate the effects of a bad situation. That’s all it does; it cushions the blow, so you don’t have to deal with further loss.
With MetaTrader 4, memory use is also significantly reduced. In contrast to MetaTrader 5, which necessitates three times as much RAM for optimal performance, this one doesn’t require as much storage space. It works swimmingly on PCs and mobile devices running iOS and Android.
Trading GBP/USD on MT5
After the success of its predecessor, the wildly popular MetaTrader 4, MetaQuotes released the next-generation trading platform, MetaTrader 5 (MT5). Though not widely available, the platform has many tools and features to improve your GBP/USD trading experience.
The interface is simple to use and straightforward. The charting tools are superb, and the sophisticated ordering options make it equally beneficial for both newbies and skilled professionals. You can automate your trading tactics by building Expert Advisors and putting them through the strategy tester on MT5. The MT5 mobile trading app works well with Android and iOS-based mobile phones and tablets.
Proprietary Trading Platforms
In addition to industry standard MT4 and MT5 platforms, the forex and CFD brokers felt the need to provide their clients with customised trading experience. Hence, they started offering proprietary trading platforms well suited to the trading needs of individual traders. For instance, eToro and Capital.com are among the pioneers in introducing custom-built trading platforms.
Millions of people worldwide rely on eToro since it is a reliable and well-known platform for trading GBP/USD and other financial instruments. Clients may benefit from its social investing features, user-friendly interface, secure design, sophisticated crowd wisdom-based tools, a wide variety of trading and investment opportunities, and lively discussions on the eToro trading platform review pages.
The same is the case with Capital.com. The broker’s in-house platform is a well-rounded web-based trading platform that is both user-friendly and powerful. The platform’s explorer feature seems helpful in getting a bird’s-eye view of the market and quickly observing which currency pair is the most actively traded.
Spreads on GBP/USD
The British pound to US dollar is one of the several pairs brokers offer with the lowest spread. Daily price fluctuations for this pair can reach 160 pips, earning it a reputation as a highly unpredictable asset. In addition, GBP/USD is considered “suitable” for Scalpers and Speculators. Below we review different types of GBP/USD pair spreads.
Standard Spread GBP/USD Accounts
Standard spread GBP/USD accounts refer to conventional account types you will find at every brokerage firm. Generally, brokers register newbies under the Standard accounts. While the spread cost may be market-competitive, GBP/USD brokers tend to offer a well-balanced suite of services to standard account holders.
Raw (Zero) Spread GBP/USD Accounts
Trading a currency pair like GBP/USD is best done when spreads are tight. One of the best ways to get low spreads is to find a Zero spread forex broker and sign up for the Raw Spread GBP/USD account. Day traders, scalpers, and professional investors find raw spread accounts ideal to trade GBP/USD because of the high liquidity. By trading in the raw pricing environment, you may access institutional-grade pricing on par with the best execution platforms in the world. Notably, raw or zero-spread accounts may come with higher commission costs.
Why GBP/USD Brokers need to be Regulated
Regulations protect clients and foster a relationship of trust with their brokers. Theft of customers’ money would be too simple for brokers without regulatory oversight. Since GBP/USD is a highly volatile pair, transparent pricing becomes essential. Here the role of regulations comes into play.
Regulations keep GBP/USD brokers and other financial intermediaries under stringent restrictions and guidelines and make them follow best practices protecting investors’ interests. Besides ensuring maximum liquidity, regulated brokers employ advanced security protocols to safeguard clients’ financial and confidential information.
However, since some people take advantage of areas with weak oversight, there is still a chance of fraudulent transactions. Hence, try to open an account with brokers holding regulations from top-tier regulatory authorities like National Futures Association (NFA – USA), Financial Conduct Authority (FCA- Uk), Australian Securities and Investment Commission ( ASIC – Australia), etc.
What Reddit and Quora Say About GBP/USD Trading
Reddit seems to have an overwhelming number of posts discussing GBP/USD trading. Since most of the threads are scenario-based, we wanted to know the general perception of Reddit users about trading GBP/USD. While most clients believe trading GBPUSD provides more tradable opportunities than any other tradable assets, some users showed their concerns over its incredible liquidity, which becomes the ultimate risk factor making the pair highly unpredictable.
In a response to a thread posted by a Reddit user about using the GBP/USD exchange rate to hedge its earnings, a member suggested he stick with the flow. He further explained that the UK’s current monetary outlook is in shambles, and rising interest rates will only strengthen the US dollar going forward. According to him, Pounds will continue to deteriorate until the US interest rates fall or the BoE has greater leeway.
Like Reddit, Quora is also full of discussions about trading GBP/USD. People want to seek the opinion of others concerning whether to trade GBP/USD on a long or short-term basis. While some suggest day trading it, others believe holding it for quite some days can be a wise move. People have also asked about the best timings to trade GBP/USD and replies favoured trade placement during the London Session.
If you wish to succeed at trading currencies, especially the GBP/USD, then familiarity with the two economies is essential. Moreover, you need to be aware of the factors that play a critical role in your success, like careful broker selection, reliable trading platforms, efficient customer support etc. This article reviewed a brief history of the two currencies and discussed how to invest in the GBPUSD.
We also listed risks associated with trading the cable besides explaining what to look for when selecting the best broker to trade GBP/USD. A quick comparison between different types of trading platforms with a highlight of their merits is also a part of the review. You may also find whether a standard spread or zero spread account is likely to be more favourable when trading the cable. In conclusion, we shared public opinion about trading the GBP/USD on platforms like Reddit and Quora and compiled an FAQs section to answer most asked questions. We believe after reading this article, you will become more confident to trade the GBPUSD.
Q & A
Since GBP/USD is one of the most actively traded pairs, almost every brokerage firm has this pair on its listing. However, not all GBP/USD brokers are worth signing up for trading the cable. According to our research, eToro and capital.com appear to be the most competitive brokers. However, we suggest you do your own research before opening an account with any of them.
The best time to trade GBP/USD is when both the London and New York stock markets are open. We refer to the trading hours between 8:00 and 10:00 am GMT and 12:00 pm and 15:00 pm GMT. This is when the market becomes highly volatile, and the spreads reach their narrowest level.
Yes! GBP/USD is one of the most volatile pairs in the forex market. Due to its increased volatility, traders especially scalpers prefer trading it over other currency pairs.
The average daily range for the GBP/USD is 160 pips. The daily range varied from a high of 366 pips on June 16, 2022, to a low of just 35 pips on July 1, 2021, the last year.
Although many GBP/USD brokers claim to offer low spreads, eToro appears to be offering the lowest spread on the GBP/USD. Clients can trade the GBP/USD with a spread of 0.21 pips on eToro.
Yes! GBP/USD brokers do charge a commission. The commission structure for most forex brokers is similar to that of other types of brokers. In addition, they may employ a spread fee between the ask and the bid prices of the quoted instruments.
The best leverage to trade GBP/USD is the one which does not result in the liquidation of a trading account. Though leverage is an effective tool to enhance your market exposure, excessive leverage magnifies the risk of loss. Therefore, top-tier regulators do not allow gbp/usd brokers or other financial intermediaries entrusted with public money to offer a leverage of more than 1:30 for trading GBP/USD and other forex pairs.
As far as regulated brokers are concerned, the highest leverage is 1:30. However, some offshore GBP/USD brokers like Roboforex even offer a leverage of up to 1:2000.
Brokers have different policies concerning minimum deposit requirements. When opening an account, you may find that some GBP/USD brokers require a minimum deposit of $50, while others let you get started for as little as $1.
The GBP/USD pair is a good choice for both day traders and swing traders. On average, the daily movement of the cable is sufficiently large to capitalise on short-term price changes. However, beginners might find it too complex to handle.