By Nathan Boardman
The GBP to CAD pair is widely traded in the foreign exchange market, with a substantial daily trading volume. This currency pairing is favored by experienced traders as well as those who are new to trading.
GBP/CAD: A Brief History
The pound sterling has a long history, dating back to approximately 775. It transformed into its present, contemporary shape after the implementation of decimalization in 1971. At present, it stands as the fourth most widely exchanged currency in the global foreign exchange market, facilitating a substantial volume of daily transactions worldwide.
In the early 1850s, Canada embarked on a journey away from the colonial pound and embraced the decimalized Canadian dollar. It is commonly known as the ‘Loonie’. The Canadian dollar was once fixed to the USD. Since 1970, the currency has been freely floating under the control of the Bank of Canada.
Factors That Have an Impact on the GBP/CAD
An Overview of CAD’s Role
The Bank of Canada has significant influence over the value of the Canadian dollar. The organization implements policies aimed at fostering economic and job creation, although it has refrained from intervening in the currency since 1998.
Canada is a significant exporter of various materials and commodities, including wood, grain, minerals, petroleum, and more. Due to its proximity to the US, Canada has experienced significant growth in its import/export industry, which has contributed to the country’s strong position in the foreign exchange market.
An Overview of GBP’s Role
The overall economic performance influences the value of GBP in the United Kingdom. Three reports on the gross domestic product (GDP) are released: Preliminary GDP, Revised GDP, and Final GDP. Traders and investors closely monitor these reports to gauge the potential market trends.
Monetary policies implemented by the Bank of England (BOE) also have an impact on the price of the pound sterling. When the BOE determines that inflation is increasing at a rapid pace, it will employ fiscal tools to manage the situation. During this process, traders take into account the possibility of interest rates rising, as it is a significant factor in analyzing the market and predicting the following guidance for the GBP-CAD pairing.
Timing Your Trades for GBP/CAD
GBP/CAD is considered a less frequently traded currency pair compared to significant pairs like USD/EUR, resulting in lower liquidity. It is recommended to exclusively engage in GBP/CAD trading during high-demand market periods. This will significantly increase the likelihood of obtaining the necessary liquidity to execute trades promptly and as desired. This occurs during the designated trading hours in London, specifically from 8 am to 4 pm GMT.
Let’s take a quick look at a hypothetical trade involving GBP/CAD to gain a better understanding of the optimal moments for buying and selling.
Suppose you are optimistic about the upcoming release of UK employment data and expect it to reflect favorably on the UK economy, particularly in comparison to the Canadian labor market. In that case, consider taking a BUY position on GBP/CAD. This would indicate your anticipation of the GBP gaining strength against the CAD in the coming days or weeks.
On the other hand, if you have a firm conviction that Canadian export data is poised for a robust rebound, consider selling GBP/CAD. This is because the value of GBP compared to CAD could decline.
Tips for Trading GBP/CAD
Despite being classified as a minor currency pair, GBP/CAD holds significant importance and garners widespread attention globally. This implies that you can typically anticipate having access to funds when necessary, along with a plethora of informative materials to assist you in determining the optimal timing for your transactions. With a reliable and authorized forex broker, you can start trading GBP/CAD right away, regardless of your location.
Profit
Successfully trading GBP/CAD demands a combination of patience, expertise, a deep understanding of the market, and a touch of finesse. As previously stated, GBP/CAD has a strong correlation with other specific markets. Therefore, it is essential to consistently monitor these markets prior to engaging in any buying or selling activities.
The markets for gold, oil, and timber present a promising opportunity to begin, along with the markets for associated currency pairs like USD/CAD and GBP/EUR.
Consider Closing Your Position to Secure a Profit or Minimize Potential Losses
Engaging in GBP/CAD trading involves taking advantage of minuscule price fluctuations throughout the day, employing a technique commonly referred to as day trading. When engaging in this activity, there is always the possibility that a solitary significant shift in any direction can completely erase an entire day’s worth of progress.
It is crucial to set a stop-loss on your account to ensure that you can promptly minimize your losses and exit the market if the GBP/CAD currency pair surpasses or drops below a specific threshold.
Select a Broker and Register for an Account
When engaging in the trading of a significant currency pair like GBP/CAD, it is crucial to select a reputable and authorized broker.
A reputable broker will utilize top-notch data and resources to assist you in making well-informed trades. They provide a direct market access feature that enables you to execute buying and selling transactions precisely when you desire. They possess legitimate licenses from reputable financial regulatory organizations, ensuring the security of your funds.
Risks Associated with Trading GBP/CAD
It’s crucial to keep in mind that engaging in GBP/CAD trading carries various risks and disadvantages that you must consider when developing your strategy:
Possible lack of liquidity: as previously stated, GBP/CAD may occasionally experience lower liquidity compared to other currency pairs, which can pose challenges when trying to execute timely buy and sell orders.
Costly to trade: as a less commonly traded currency pair with intermittent liquidity issues, dealing GBP/CAD can be pretty expensive.
Unexpected fluctuations: while the CAD remains relatively steady, the GBP has the potential to experience significant swings in reaction to unforeseen economic developments, introducing an element of uncertainty.
Summary
The Pound-Loonie has been a popular choice among forex traders of all levels and institutional investors for quite some time. GBP/CAD mirrors two of the most significant, thrilling, and vibrant economies globally. By utilizing the appropriate trading tools and gaining valuable insights, engaging in GBP/CAD forex trading can prove to be an exceptionally fulfilling endeavor.
