The GBPCAD pair is among the most actively traded currency pairs in the world. What’s more, the GBP and the CAD are the fourth and sixth most traded forex market currencies. If nothing else, all this popularity means that the currencies and the pair probably provide benefits that continue to grab the attention of many traders.
To trade GBPCAD:
- Analyze GBPCAD.
- Create a trading plan and strategy. A complete strategy will include when to trade, position-sizing, and risk management rules.
- Pick a forex broker and open an account.
- Choose a platform for trading.
- Open a position, monitor it, and then close the trade.
One of GBPCAD’s noteworthy characteristics is that the pair is a proxy for the dynamics of two major and heavily traded currency pairs – EUR/USD and GBP/USD. As such, the pair is popular among newbie and seasoned traders alike. What else makes GBPCAD an attractive choice in the forex market that comes with many options?ç
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Currency Pair Chart and Profile
The GBPCAD pair, which is also called the Pound Loonie, consists of the British pound and the Canadian dollar. The GBP is perceived as one of the world’s key reserve currencies, while the CAD is a major commodity currency. This makes GBPCAD the pairing of two high-ranking currencies.
The economies behind GBPCAD
When ranked according to GDP, Britain is the world’s sixth-largest economy. The services sector is the primary driver behind the economy, followed by the manufacturing and agriculture sectors. The monetary policy governing the British pound is set and managed by Britain’s central bank, the Bank of England (BoE).
Canada comes 10th in GDP rankings. Manufacturing is the economy’s cornerstone, but the economy also relies heavily on commodities since Canada is among the world’s top oil and gold producers. As a significant exporter of goods such as wheat and wood, Canada is also considered a resource-based country. The Bank of Canada (BoC), is the central bank in Canada and the main body in charge of monetary policy governance.
What influences the movement of GBPCAD?
A primary factor to consider when trading GBPCAD is that the U.S. and Canadian economies are closely related. In addition to being neighbors, Canada and the U.S are major trade partners. When the U.S. economy is experiencing growth, the Canadian economy is usually right behind. This means that the U.S. dollar will likely affect the movement of GBPCAD.
Similarly, in addition to developments in the Eurozone, U.S. economic data also tends to affect the GBP, and in turn, GBPCAD. Other factors that impact the movement of the pair include:
- Changes in the Canadian and British monetary policies. For instance, when British monetary policy changes, it normally affects the yield of British securities and this tends to alter the sentiment towards the pound. You will need to stay up to date with economic markers such as interest rates, inflation, and consumer confidence when trading GBPCAD.
- Commodity price movements will likely influence the CAD and the GBPCAD pair in turn.
- GBPCAD will likely be influenced by political statements made by both the Canadian and British governments as well as other global players. The pair will also likely react to news updates and commentary made by economists, forex market experts, and influential politicians.
Is GBPCAD an exotic pair?
A currency pair that contains any of the major currencies excluding the U.S. dollar is referred to as a cross, minor pair, or a cross-currency pair. Since GBPCAD contains two major, non-U.S. dollar currencies, it is a minor currency pair and one of the major cross pairs.
Pros of trading GBPCAD
The GBPCAD cross provides several benefits that you can leverage in the dynamic forex market.
- The pair is attractive because it contains the GBP. The GBP has some of the higher interest rates among the major currencies, making it one of the favorite investment choices among traders. This gives GBPCAD enough liquidity and trading volume that makes trading the pair worthwhile.
- GBPCAD offers substantial volatility that makes entering into trades advantageous without taking on excessive risk. For example, GBPCAD is more volatile compared to its GBP/USD counterpart. Many traders use the GBPCAD pair as a diversification tool from the major currency pairs.
- GBPCAD has a tendency to display notable trends over the long-term, making it a good choice for traders looking to potentially make medium-term and long-term gains.
Cons of trading GBPCAD
GBPCAD may be a popular currency pair, but it has some downsides.
- GBPCAD is more prone to higher volatility because of the lower liquidity of the GBP compared to the EUR. With relatively weaker liquidity at certain market times, the GBP can get caught up in one direction and this can disrupt your trading.
- Due to being a minor pair with relatively lower liquidity, GBPCAD can sometimes be more expensive to trade.
- The GBP tends to react strongly to surprise economic data releases. This means that your GBPCAD pair trading strategy can be thrown off by such data.
The Best Time to Trade GBPCAD
The most significant movement in GBPCAD usually occurs when the European trade session is open. There’s also potential for strong moves when key U.S. and U.K economic data is released during the overlap between the European and New York sessions. This four-hour overlap occurs between 1 pm and 4 pm GMT.
Note: Although the Asian session doesn’t normally provide much movement for the pair, you may still see high trading volumes if there are any major market announcements.
Best Trading Strategies for GBPCAD
From trend trading to range trading and everything in between, traders use several strategies to trade GBPCAD. Some of the top strategies for trading this cross pair include:
Swing trading
The swing trading strategy focuses on capturing short- to medium-term gains and cutting losses quicker in the market. The idea behind the strategy is to consistently gain shorter-term profits that compound over time. Although swing trading positions can be held longer, they typically last a couple of days to weeks.
When swing trading, you will generally trade within ranges – going long at levels of support and short-selling at levels of resistance.
Trend trading
In forex, a trend forms when a currency pair’s price moves in a specific direction for a certain period. A trend can move upwards, downwards, or even sideways. Trend trading is about being able to identify trends and any potentially profitable market entry and exit points.
GBPCAD tends to form trends in the medium- to long-term. You can find the GBPCAD pair’s basic trend using the moving average indicator. The general idea is to go long when the pair’s current price moves down past the moving average and go short when the pair’s price goes just above the moving average.
Scalping
When scalping, you attempt to make profits by selling or buying a currency pair and holding the pair for a short time. A forex scalper capitalizes on small price movements that occur throughout the day and they rely on compounding their gains by making a large number of small trades.
The GBPCAD cross provides good volatility that makes scalping possible. The pair can move by over 100 pips per day and this is one of the reasons why it’s popular among traders.
Similar to trend trading, you can use moving averages in scalp trading. You use the moving average to find the direction of the longer-term trend and then trade in the direction of the trend. For instance, if the long-term moving average is declining, you can look for a short position.
GBPCAD is affected by changes in the British pound and Canadian dollar. For instance, the CAD exchange rate is affected by U.S. economic events and so GBPCAD movement closely correlates with the movement of GBP/USD.
Correlation of GBPCAD with other instruments, commodities, or indices
As one of the commodity currencies, the Canadian dollar is heavily reliant on commodity prices, notably those of oil. Consequently, oil prices have an inverse correlation with GBPCAD. When oil prices go up, the CAD gains and the value of GBPCAD drops. Conversely, when oil prices fall, the CAD weakens against the GBP and GBPCAD prices go up.
Related Questions
Both GBP and CAD are popular currencies. These are some questions associated with the currencies.
What are commodity currency pairs?
Commodity currency pairs are those pairs comprising currencies from countries with large amounts of commodity reserves. These currencies are known as commodity currencies and some examples include the Canadian, New Zealand, and Australian dollars. The movement of commodity currency pairs is strongly correlated to changes in commodity prices.
Why is the British pound called sterling?
Originally, a pound coin weighed one troy pound of sterling silver. This led to the currency being named “pound sterling.”
Is GBP a safe haven currency?
The British pound is seen as a safe haven currency because of its long-term stability, even during times of significant market risk.
Is GBP the same as Euro?
The British pound and the euro are two different currencies. The British pound is Great Britain’s currency, while the euro is the currency used by the 19 Eurozone member countries. Each of these currencies has its own symbol and exchange rate.