EUR/GBP Trading Tutorial

The EUR/GBP currency pair is one of the more popular forex pairs for traders and speculators alike. There are many strong reasons to back it up. The Euro and Pound sterling currencies belong to the two biggest global economies (European Union and the United Kingdom). The stable flow of capital between the two economies makes the EUR/GBP currency pair relatively stable. This currency pair has high liquidity, meaning there are tight spreads with minimal slippage. Speculators prefer to trade this foreign exchange pair heavily. This pair has a constant trade volume. Currency pairs are traded electronically Over the Counter (OTC).

The below post covers step-by-step how to start trading EUR/GBP.  There are eight forex strategies for trading EUR/GBP. The guide is comprehensive and written after extensive research. The reader can expect good insights in the right direction. Cross-check the strategies and apply the best approach while trading. Be an informed trader or investor while trading at any point in time. 

EUR/GBP – A Minor currency 

The Forex currency pairs are classified into three categories, namely: Minor, Major, and Exotic. 

Minor currency pairs do not include USD. They are also known as cross-pairs. The EUR/GBP pair falls under the ‘Minors’ group in the Forex. This currency pair has tight spreads at most times.  

Major currency pairs have high liquidity ratios. There are lowest spreads in Major currency pairs because of which they are traded worldwide virtually. Some of the examples include EUR/USD, GBP/USD, USD/CHF, AUD/USD, USD/CAD, etc. They are also termed as free-floating currencies. Their prices are regulated by demand and supply flow. Traders prefer to deal with high volumes by keeping the spreads smaller. 

The third type is Exotic currency pairs. They consist of one primary currency with a combination of currencies from developing countries or emerging markets. One of the known exotic currency pairs is USD/SEK. This pair has wider spreads and is less liquid as compared to Minor currencies.

EUR/GBP cross-pair is also popularly known as ‘Chunnel.’ The name is given in reference to the Channel Tunnel, which connects the UK and France (Europe). 

History of the EUR/GBP pair

The Pound Sterling is the oldest currency existing since 775 AD. In the olden days, the GBP currency existed both in reserves and in circulation. The currency decimated from 15th August 1971 when the Bretton Woods system broke. In 1971, the currency lost its value three times. Other significant events like the 1992 UK exit from the Exchange Rate Mechanism, the 2001 dot-com bubble burst, and the 2016 Brexit, where the UK public voted to leave the EU, effectively influenced GBP values. GBP is the most popular trading currency amongst Forex traders and speculators to date despite all the events. 

The Euro is a modern-day currency introduced in 1999. In the starting years, it came into force as electronic money. People used it to maintain accounts only. In January 2002, the coins and currency notes were introduced as a currency in circulation for 12 EU countries. To date, the Euro (€) currency is prevalent in 19 out of 28 European countries. The currency value experienced a shift in value during 2008 due to the European recession. In the upcoming days, the currency value got influenced in March 2015 with the €1 trillion Quantitative Easing program launched by the European Central Bank (ECB).

EUR/GBP – The Globally Traded Currency Pair

EUR/GBP is popular across traders, speculators, and investors globally. It is a relatively stable currency in the global financial currency markets. The governing economies regulating these currencies are strong. Since there are lesser price changes, traders and speculators can effectively trade this pair. The price varies at some point in time. Majorly because its cross currencies rank amongst the top 8 globally, the pair has low volatility despite this. For Forex traders, EUR/GBP brings significant opportunities for profit during busy trade hours. 

Factors regulating the EUR/GBP pair

The EUR/GBP cross currency pair is governed by four major institutions. 

UK Parliament

The major price changes are triggered by political decisions taken by the UK Parliament. For traders, speculators, and investors, political favors by the UK Parliament derive a great source of information for EUR/GBP currency trading. 

UK Office of National Statistics (ONS)

The ONS produces and publishes economic & social policies. The financial data releases play a vital role in influencing EUR/GBP price changes. The GDP figures, unemployment rates, wage growth figures can be an essential source for Forex traders, prominently when unexpected figures change. 

European Central Bank

The ECB is a centralized bank of 19 EU nations. It monitors the function of individual banks and frames the monetary policy for the Eurozone. The ECB decisions regarding changes in the interest rates widely impact the currency pair prices.  

Bank of England

The BoE launches updates regarding the rates and rate statements every month. The actions by BoE affect the prices of EUR/GBP cross currency pairs. 

Guide to trade EUR/GBP pair

The EUR/GBP traders can consider these essential tips before trading. 

Learn what’s base currency & quote currency to trade in Forex

There are two terminologies widely spoken in the Forex market – Base currency and Quote currency. The quote currency is the money required to buy the base currency. 

The currency listed first is the base currency, and the currency listed second is the quote currency. For example, in the case of EUR/GBP, EUR is the base currency, and GBP is the quote currency. It indicates that you are selling GBP to purchase EUR. 

There are two kinds of prices, namely, bid price and asking price. The bid price is the price quoted by the buyer to acquire the base currency. The asking price is the price quoted by the seller to sell the base currency. 

Focus on low volatile currency pair to make money from Forex

Volatility, in simple words, is referred to as risk, reflecting the fluctuating tendency of the currencies. Some currencies are relatively less volatile. Many factors affect the volatility of currencies. 

The European Union and the United States are comparatively stable economies, which makes this cross-pair stable. The spread is not high, making the EUR/GBP currency cross-pair less volatile. The low fluctuations make it popular in the Forex market. 

Set up a brokerage account for Forex trading

To begin with Forex trading, traders, speculators, and long-term investors need to open a Forex trading account. The Forex brokers do not operate on commissions. They make money from pips or, also known as spreads. 

Forex traders choose CFDs to settle price differences from opening and closing prices. CFD stands for Contract for Differences. CFDs are a great source of security for Forex traders and speculators. 

Analyze economic news to make right Forex trading decisions

The financial information impacts currency prices significantly. Breaking news often leads to dramatic market fluctuations, resulting in a price drop or price rise. Based on trading strategies, Forex traders can generate huge profits based on the market analysis. 

The recent news related to economic changes, new monetary policies, capital input and withdrawals, inflation, and so on play a vital role in trading effectively. They can have a short-term or long-term impact on currency pair prices. 

Analyze political news to make right Forex trading decisions

The political decisions often influence the Forex market prices. More often, political news influences buying or selling decisions. The political power can be temporary. This information is primarily helpful to traders and not long-term investors. Day traders can lock profits following strategies like Scalping, Swing trading, etc. 

Understand leverage for Forex trading

Leverage amplifies in both ways. It either multiplies your profits or increases losses. Traders can use leverage when there are small price changes in pairs. Unlike stock markets, the forex market does not have much movement. A Forex trader needs to invest high capital to gain high rewards. Leverage facilitates borrowed funds for trading. It is borrowed funds that a broker facilitates through margin trading. 

Here is an example of Forex leverage:

A trader wants to make a $100,000 trade. For leverage of 1:1, he needs to have $100,000 to trade in Forex. On the other hand, the trader uses leverage 50:1; he needs to have an Amount Required Margin of $2000 to trade in Forex. This Amount Required Margin could change per currency pair as USD value is varying against each pair. 

Forex brokers earn through bid-ask spreads; the more a trader takes lots, the more they make. The leverage is interest-free. It is a virtual borrowing that provides purchasing power to Forex traders. 

In this example, a trader invests $100 and leverage for 1: 100. So, he can trade for $10,000 in the Forex market. Also, he put a stop loss for $100. But the price is moving against his interpretation, i.e., $50 or $60. So, as soon as the price hits $100, his position closes. This way, he loses what he has invested initially, and the broker does not lose anything. So, a trader does not pay interest on leverage. In European countries, the maximum leverage limit is 1:30. Also, the leverage regulations are strict in the EU countries. The European government doesn’t want people to lose serious money in Forex due to misinterpretations of the market. 

Advantages and Disadvantages of Leverage for traders

Here is the advantage:

A trader gets the purchasing power to aim for higher rewards if he does not have more considerable capital. 

Here is the disadvantage:

There is high reward potential along with risks involved. Suppose the price moves against the trader’s interpretation, the stop loss hits. As a result, the trader loses money. 

Trade at the right GMT hours to earn high rewards in Forex 

The Forex market is open 24 hours. It operates from 5 p.m. EST on Sunday until 4 p.m. EST on Friday. The trader is advised to trade at peak hours. In other words, the trader must prefer trading when it is daytime in London. The majority of traders are actively trading at these hours, i.e., at European Forex sessions. 

The trade hours start at 7 a.m. and end at 4 p.m. (GMT).  The EUR/GBP global traders can trade effectively at these hours because there are three trade sessions: New York, London, and Tokyo coordinating with the time zones in the underlying countries. 

Learn to watch the trends to trade in Forex

Changes in charts denote currency price change. A trader has to analyze the candlestick patterns keenly. 

Sometimes the market is bearish. For example, if the price goes below the simple moving average, then it is a downtrend. To avoid huge losses, you must follow short signals of the EUR/GBP cross-pair. 

Similarly, if the price moves up the simple moving average, then it is an uptrend. The market is bullish. A trader can follow the long signals of the cross-pair while sticking to the fundamentals of trading. 

Watch the correlation between two currency pairs.

There are many other cross-pairs in correlation to EUR/GBP. It includes EUR/JPY, EUR/USD, GBP/JPY, and so forth. These correlated pairs can affect positively or negatively this currency pairs. 

The EUR/GBP pair positively correlates with USD/SGD, EUR/MXN, and CHF/SGD. On the other hand, it is negatively correlated with GBP/JPY, GBP/NZD, and GBP/CHF. 

When EUR/GBP prices go up, the other cross-pairs also go up in positive correlation. In a negative correlation, when EUR/GBP goes down, the other cross-pairs also go up. 

Set your position in Forex trade

In Forex, the trader trades both upwards & downwards. While buying one currency, a trader sells another currency. So, the trader can speculate in two ways. 

In this example,

Enter a Buy position

A trader thinks that the Euro is bullish. So, he set a buy position for one lot. The current EUR/GBP price is 1.22720/740. As the trader is buying, he enters the trade at 1.22740. 

Assume that the price rises after a while. The EUR/GBP price rose to 1.23160/180. The trader has gained 42 pips. He closes the transaction at 1.23160 and earns profits. 

Enter a Sell position

Following the above example. Assume that the investor thinks that the Euro is bearish. So, he set a sell position for one lot at 1.22720. 

Assume that the price falls after a while. The EUR/GBP price drops to 1.23160/180. The investor has lost 46 pips. He closes the transaction at  1.23180 and incurs a loss. 

8 Most Common Trading strategies for EUR/GBP Pair

There are many different Forex strategies. Strong risk management skills, consistency, and patience help get practical trade insights into trading psychologies. 

Not all strategies are made for all. Some methods are suitable for expert traders. In contrast, some are suitable for beginner traders. 

Here are the top 8 Forex trading strategies. 

Forex Scalping with EUR/GBP

Scalping is all about holding currencies for a very short time. 

In scalping, the trader trades for high unit volumes. So, either the trader has significant gains or incurs a loss. The key to being a successful scalper is to have a strong exit strategy. If the market reverses, the trader must exit the market quickly. Otherwise, he can incur huge losses if prices tend to move in the opposite direction. 

The trader scalps at many intervals in a day, provided he knows the critical positions on the candlestick chart. It is presumed that the prices will go up after the first stage of the movement. However, after that, the costs can go up or go down as well. If the price goes down, the trader must exit the market immediately and accept the losses. 

While scalping, a trader must manage leverage risks, spreads, slippage, and fees. 

Best time for Scalping

The trader can scalp effectively when major news releases are in the market. He can scalp right after employment reports, and interest rates are released because the market is highly volatile after a big announcement is made. So, a smart trader can book high profits in a short time. 

A regular Forex market can help you gain 20 pips. On the other hand, an unstable market might help you earn 40 pips as well. 

Swing Trading with EUR/GBP

In this type, investors attempt to buy at intervals whenever price touches the area of support. First, the traders need to identify the position. After that, they can buy 3-4 trades at different time intervals. This strategy is executed over a couple of days or several weeks. It would help if you had robust technical and fundamental analysis to make this strategy work. 

A swing trader can book profits by putting a pre-decided stop loss. Or else, he can also take profits or losses based on price action movements.

A swing trader must always trade EUR/GBP in a ranging market. Never trade in an uptrend or downtrend. 

Types of Swing strategies

There are three primary strategies in Swing trading.

Breakout strategy

Assume that the market has been in an uptrend for a longer time. A trader locks a position as the uptrend begins in the earlier stage. So, you will square off the position as soon as the market reverses when the price breaks the critical resistance level. 

Breakdown strategy

This point is also referred to as a downside breakout. It is precisely the opposite of breakout trading. A trader locks up the position as the downtrend begins in the early stage. You square off the position as the price breaks the critical level resistance and enters the uptrend. 

Retracement trading/ Pullback trading

Assume that the EUR/GBP Forex market is in the up-trend. After continuing up-trend, the prices temporarily fall off. However, it instantly moves up and continues the previous up-trend. This is called Pullback or Retracement. 

The pullbacks are tough to predict. A trader does not know whether it is a mini-reversal or a down-trend. In common parlance, all reversals begin with a pullback. 

Reversal trading

As the name says, it denotes the change in the current trend. For instance, when the up-trend breaks out, the down-trend begins and vice-a-versa. The reversal trend can be bearish or bullish. 

Best time for Swing trading

Swing trading is ideal when you can wait for days & weeks to earn rewards. Many people do not have time to watch the news now and then. Such traders prefer swing trading. 

Traders doing swing trading must be patient and mindful. They must not make impulse wrong moves when the trade starts to move opposite. Be ready to accept significant-stop losses as well if you are a swing trader. Though, with deeper technical & fundamental analysis, a trader can win the game. 

Day trading strategy with EUR/GBP

In this type, a trader buys and sells currencies on the same day. Traders place one or more orders throughout the day. They do not hold the stocks after market hours. At the closure of the market, they sell out the trades. 

A day trader of EUR/GBP pair needs to stay active during active trade hours. You observe price fluctuations based on technical analysis. Based on which, you decide entry and exit points in Forex. When the market is highly volatile, a day trader buys and sells currency pairs. 

Besides, a day trader must learn to be patient, calm, and in control. Also, a solid technical and fundamental analysis is a must. 

Types of Day trading

There are three types of day trading strategies for EUR/GBP.

Momentum trading

This trading works on solid price movements. In this strategy, a day trader waits for the best price point. Once the trader finds the right price, he opens the position. There is a high volume of trading involved in this trade category. 

Trend trading

As the name says, it involves analyzing market trends. To follow this strategy, a trader must look over the broader perspective of the chart. Once the trader observes the market trend, he will focus on smaller time frames. Based on the indicators, you can trade to earn rewards. 

Forex news trading 

A trader needs to stay updated with the latest news and announcements. The announcements regarding ECB & BoE interest rates, ONS news, etc., might majorly bring a shift in Forex prices. A trader or speculator might earn profits by keenly observing chart trends in this period. 

Best time to trade via the Day Trading strategy

You trade at active market hours. Whenever news is announced, the price fluctuations are significantly high. So, a trader has to keep an eye on market trends, news, and price charts to trade efficiently. At this time, a trader can apply the strategy to trade aggressively yet intelligently. 

Price Action Trading with EUR/GBP

Price action strategy is based on the study of historical prices. It is a strategy where a trader makes a profit by technically analyzing current and previous pricing data. Following this, an investor can frame out the best technical approach for EUR/GBP. 

In this strategy, a trader analyzes the support and resistance points. Based on the historical data, you can read the market movements and make trades. So, this strategy is more dependent on technical analysis. Therefore, the speculators need to analyze candlestick charts, high and low swings, prices, trend lines, etc. 

Best time to trade via the Price Action strategy

A speculator makes decisions based on price predictions. So, this trading strategy is suitable for arbitrageurs, speculators, and retail traders. Trading firms also use it. Also, the process is ideal for short-term & medium-term investors. 

Carry Trade strategy with EUR/GBP 

It is a strategy where a trader borrows a currency with low interest to fund a currency with a high-interest rate. You earn rewards from the differences between two currencies. In other words, a trader uses the high-yielding currency to fund a low-yielding currency. Herein, the trader makes the difference between two rates, which are relatively high depending on the risk stakes. 

This strategy is suitable when interest rate spreads are low. EUR/GBP is a  stable currency which makes this strategy highly qualified. There are usually tight spreads in this currency pair. This strategy works best when there is low volatility as well as price is not moving much. 

Best time to trade via the Carry Trade strategy

A trader might go for this strategy when BoE or ECB is raising interest rates. The process does not yield results when the interest rates are reduced. The reduction impacts currency values. At such times, there is low demand, so selling the currency becomes a challenge. 

Position Trading with EUR/GBP

In this strategy, a trader invests in a currency based on fundamental studies for a longer time. The process is dependent primarily on fundamental analysis. Although technical analysis impacts when short-term fluctuations are impacting long-term values. A trader holds currencies for months and years under this strategy. As the holding period is more extended, you do not need to focus much on technical analysis. 

This strategy is a favorite strategy of many great leaders like Philip A Fisher, Warren Buffet, Joe Ross, etc. 

Traders cannot trade in markets that are highly volatile and have wide spreads. So, a long-term position trader can choose narrow price ranges for EUR/GBP trade. Yet, position trading is not ideal for Forex markets as many times; currencies are volatile. 

Grid strategy with EUR/GBP

In this strategy, traders place stop-loss orders below and above the current price. So, when a particular price hits, the trader either gains profits or incurs losses. Unlike other strategies, the trader does not need to look over the trend direction. 

Though, investors need to identify support and resistance levels using technical analysis. 

Best time to trade via Grid Trading strategy

Generally, you can place the grid orders over post-trading hours. As long as the trader places the order, he needs to close other pending orders when the trend manifests.  

Range Trading strategy with EUR/GBP

It is a strategy where speculators trade when the market is lacking direction. There has been no tangible long-term trend for a while. Speculators buy currencies when there are almost all sellers. On the other hand, they sell currencies when there are nearly all buyers. It works based on the identification of oversold (resistance) and overbought (support) currencies. 

The strategy can be used at any point in time. Traders hold short and long positions at various time intervals. 

Guide to trade with a Range Trading strategy

Follow the guide below to use a range trading strategy effectively. 

Recognize a suitable trading point

Traders have to recognize the non-trending market. The Moving Average and ADX can be used to identify the non-trending market. Take the timescale more minor than the period being analyzed. The range traders have to choose the flatter line on the candlestick chart for range trading. 

They can also note down non-trending markets through ADX. It operates on a scale of 1-100. The index below 20 is known as a sideways market at most times. In conclusion, identify the non-trending market to start trading. 

Recognize the trading range area

Further, traders have to recognize the range area for trading. Ensure that the price is recovered from the support band and dropped from the resistance band at least two times. This way, Forex speculators ensure that the price is not fluctuating due to a long trend. So, it is a range trade area. 

In a highly volatile market, it is hard to understand candlestick patterns. The price is always moving within a particular range. So, there are a high number of candlestick bars in the area. Traders have to identify the market correctly. 

Average Daily Range (ADR) indicates whether the market is higher or lower than the usual range. So, you can assess risks skillfully while trading a particular currency pair. 

Execute range trading 

So, you have set up the range trade area. Now, you can buy and sell when price touches support and resistance bands. One can set stop loss at or outside the range area. Also, you should use technical indicators along with it. 

Market breakout point

The trading range will eventually burst out. As a result of which, the market will catch an uptrend or downtrend. It is hard to predict when this point will arrive. However, speculators can use indicators for technical analysis. 

Utilize open range breakout

After a breakout, traders can analyze the market for the next 15-30 minutes. They can recognize the opening low and high trade range. Generally, the direction at which the price breaks out indicates a trend for the remaining day. 

Best time to trade via Range Trading strategy

Traders can perform it at any point in time when the market is non-trending. 

Conclusion

These are the Forex strategies for EUR/GBP. Traders, Speculators, and investors have to select the trading strategy wisely. 

For a beginner, day-trading or scalping strategy is not useful. These strategies require them to be researchful and action-oriented. Instead, such investors can choose trend trading and long-term strategy. It will provide enough time for them to learn technical & fundamental analysis.

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