What is the FOREX MARKET?
The Foreign Exchange Market or Forex market is a platform where one currency can be bought or traded with the other. The exchange takes place by paying a certain amount or fee known as the currency exchange rate. Currency exchange rates do not stay the same. They vary depending on a list of factors. Interest rates, inflation rates, Gross Domestic Product Rate (GDP rate), government debt are some factors. This exchange is vital for transactions such as investment, tourism, and business trades outside one’s motherland. This type of trading involving foreign currencies is called Forex Trading.
What Is A Currency Pair?
The exchange that takes place between the currencies of two countries forms a currency pair like GBPCAD. All currencies are represented internationally by a three-letter code issued by ISO (International Organization for Standardization). A currency pair combines the alphabetic code of both types. For instance, the USDJPY pair represents the US Dollar and Japanese Yen; The GBPCAD pair means the British Pound and the Canadian Dollar. The first three letters represent the base currency. The other is called the quote currency.
The exchange rate between the currencies is determined. This specifies how much a potential trade in the quote currency will be for a base currency. If the USDJPY pair trades at 114 it means that one US Dollar costs 114 Japanese Yen.
There are three types of currency pairs – major, minor and exotic. A Major Pair always has a US Dollar in it. Pairs without the US Dollar are called a Minor Pair or a Cross-Currency Pair. They are less liquid. The exotic pairs consist of pairs of emerging countries.
The background of the GBPCAD pair
GBP is an abbreviation for British Pound Sterling while CAD is the Canadian Dollar. This pair is one of the best-selling in Forex markets. They are both major world currencies.
British Pound Sterling is the currency of the United Kingdom. It has been in operation for a few thousand years. It first appeared in 755. In ancient times the British Empire was expanding globally. The British Pound played a key role in initiating foreign exchange. There are times when the British Pound has been the only currency used to pay off debts and foreign payments. It has gained worldwide popularity.
The GBP is a free floating currency. It is considered to be the fourth best-selling currency. The UK economy has maintained its trade and financial position.
The official Canadian currency is the CAD (Canadian Dollar). It is also known as the Loonie. It is the sixth most popular currency to trade in the forex market.
The paired GBPCAD is important because of the history they share. Canada was once part of Great Britain and used the Pound Sterling as its currency.
In 1850 Canada invested in the US Dollar after using the British Pound for 100 years. The recession in 1971, freed the Canadians from the US Currency and their own free floating currency emerged. All Canadian provinces adopted the new currency which is managed by the Bank of Canada.
GBPCAD is a popular currency pair on the Forex market. CAD and GBP enjoy key positions on stock exchange charts.
The US and Canada, share a major trade relationship. They are geographically close as they are neighbors and they share a border. Both countries have strong economic ties as well. If the US economy is hit by a recession, Canada could also face it. Because of the US dollar’s dominance any variation of its value will affect the GBPCAD market.
In addition to the effect that the US dollar has on the GBPCAD currency pair, there are other internal factors of both countries that bring diversity to the pair. Some of the highlights are:
International Monetary Policy Variations
A monetary policy controls cash flow. It is a system adopted by the relevant authorities in a country. It gives the economy a boost. A monetary policy depends on several factors such as interest rates and inflation and so on.
The GBPCAD’s monetary transition changes when the monetary policy of either of the two countries is changed.
The GDP of the Market
GDP or Gross Domestic Product describes the performance of a country’s economy.
Canada is a major supplier of natural resources, especially petroleum. The economy of the United Kingdom depends on the production of food and beverages, and the production of machinery.
The paired GBPCD is influenced by international GDP reports.
Commodity Price Movement with the example of GBPCAD
The price movement of goods is concerned with the supply and demand of goods.
The Commodity Price Movement affects the movement of GBPCD pairs.
Statements issued by governments of both nations affect the value of their currency.
A slight setback in the political world affects the global position of Canada and the finances of the United Kingdom. And as such, the flow of the GBPCD pair is also flexible.
How to trade GBPCAD currency pair
High liquidity of a pair is defined as enormous trades that can take place with minimal variations in the exchange rates.
The GBPCAD is not as liquid as major pairs in the forex market. Even though it is a minor pair, it is one of the most demanded pairs worldwide, which aids in the liquidity of the pair. A vast number of market experts predict the success of the currency pair due to the demands. The involvement of experts helps to make investment decisions easier. There are fewer trading risks associated with investment in this pair in the market.
Once the stability of the pair has been established, one might wonder how to trade between the currency pair GBPCAD.
The trade between a British Pound Sterling and a Canadian Dollar (GBPCAD) takes place in the Forex Marketplace. A trade has taken place when a trader buys the pair and he wants to make a trade-in. For instance, in a pair of USDJPN, a trader will buy USD by paying in Japanese YEN.
Step by Step Tutorial to Trade GBPCAD Pair
Thorough Research on GBPCAD
The analysis or research before any trading is a necessary pre-step in trading. The forex charts show no trends as the exchange rates fluctuate all the time. To be on the safe side, thorough research and analysis should be done.
The more thorough the analysis is, the less the chances are of loss. In the case of GBPCAD, the analysis can be done in the following steps:
Fundamental Analysis with the example of GBPCAD
To carry out the fundamental analysis, the fluctuations of primary entities in the forex market must be examined. The entities can be interest rates, GDP, political stance, etc.
In the pair GBPCAD, basic information should be researched about the GBP. This information could include news of political and economic ups and down that the country might be experiencing.
Technical analysis means that you look at parameters of concern and take your decisions regarding whether or not to invest by analyzing them.
It is normal to examine parameters both manually and digitally. The manual practice means you look into the charts and resources and make decisions according to them. For a digital analysis, you program certain parameters and then generate the analysis results using an electronic tool.
Weekend Analysis with the example of GBPCAD
There is another type of analysis which is called weekend analysis. It is used to get a broader view of the prevailing situation of the economies of a Forex pair. Because there is no trading over a weekend, the market is stable and one can analyze at leisure how the pair did the previous week. By the end of the weekend with the analysis complete, more informed decisions can be made regarding the investment in the pair.
Another reason behind doing this analysis is to prepare how you will proceed during the week. If the mind is already made up, the week’s investments should go smoothly.
When investing in any currency pair the investor needs to do all of the above steps if he wishes to make a successful investment. The time the investor spends preparing and analyzing helps him decide what step to take.
Pick An Adequate Strategy For Your Pair GBPCAD
A forex trading strategy tells us when to buy or sell a currency pair. There are various types of strategies one can employ. Each strategy has a specific function and is dependent on the availability of data.
The three fundamental aspects in selecting a suitable strategy are:
- The availability of the time needed to detect the data and resources, which is also called the analysis.
- There is the liquidity of the pair one is going for.
- The last one is the targeted amount. When the targeted amount is reached, the deal closes. This amount has to be decided before making any trades.
The strategy is a plan made before trading so it should be comprehensive. It should indicate when the trade should be made, the amount of money to invest, and how much risk is involved.
Pick a Broker before Opening an Account
A trader might like to consider one of the following brokers:
Roboforex is a reliable, regulated broker. Beginner traders will find the platform friendly. Roboforex also helps beginners with courses, on line help and the webinars that they offer. Customer reviews are good although some feel that while they were helped as beginners, they now need to move on with the experience they have gained.
This is an Australian broker offering global coverage. It is a regulated Forex broker which boasts rapid trading from many global centers. It offers many tools to help traders and has a good customer support system.
Markets.com’s trading platform offers you reliable, regulated brokerage. The platform is user friendly for beginner traders. It is a global company based in the UK. It is to be complimented on the online education opportunities which will help the beginner trader to get started.
Once you have selected a broker, you can open a Forex account by depositing an amount into your account. After the amount is deposited, the broker provides leverage to the trader. The leverage offered to the trader can be a multiple of the deposited amount. There is great fluctuation in the market so if a large amount of money is involved a huge loss is possible.
The trade between GBPCAD can also be done through CFD (Contract of difference).
A Contract of Difference is a tool in Forex trading that occurs when either the broker or the trader, takes responsibility for the difference in money which will be encountered at the end of the trade. This is called the security difference.
Certain trades are made for a short period while there are others for a long period. A CFD is usually a contract for a short time.
When the trade starts, one has to choose a position. It can be a long position or short. The long position is when the prices of the commodities are expected to get high and the short position means the prices of the commodities are likely to fall.
How to Trade between GBPCAD by CFD
To trade a GBPCAD pair by CFDs, one has to predict the value of one currency against the other. For instance, if you are about to make a trade from CAD to GBP and the trends are predicting a rise in the value of CAD versus the GBP then take a long position by buying the CFD contract. If you think the value of CAD will decrease then take a short position by selling the contract.
Select a trading platform
The broker’s site offers online platforms to help trade. A small fee is usually payable. All you have to do is add funds into the account and make informed trades. The online platform provides trading features that are exclusive to your broker.
These features help both the inexperienced and the skilled. The platform interprets and updates the trends and charts.
Making a Trade: Explanation through GBPCAD Pair
The trader places an order of units called lots and must decide whether he is going long or short. He will get help from the charts on the platform.
In the case of pair GBPCAD, If CAD needs to be exchanged for GBP and the rate of GBP is likely to go down one will select a short position on 1 micro lot (1000 units).
A lot is the units of currency used in the transaction 1 lot= 100,000 units.
After that, select the stop loss and take profit level. This is a step to manage risk associated with the trade.
After you have begun the trade, you wait to discover the profit or loss associated with the trade.
Marketing Strategies Used in Trading
Keeping up with change is not easy for marketers. In the fast-paced world of marketing, staying ahead is the key to succeeding.
A forex trading strategy is a systematic approach towards successful trading. The plan helps to maintain and direct the trade deposits. Different strategic plans can be applied in different scenarios considering the fluctuation in the market, requirement of resources, and the conclusions from prior established analyses.
The current economical standing of the country influences your trading. Therefore, any change in that should be taken into account.
Carry trade Strategy
This marketing strategy is the most common. When two currencies have significant differences in their interest rates, the trader tends to benefit from it. A trader buys the currency when the charts show low-interest rates and converts the currency with a higher interest rate.
Classification of Carry trade
There are two categories of Carry trading:
1) A positive Carry Trade: When profit is expected by buying a currency with a high-interest rate to selling it to a currency of low-interest rate.
2) A Negative Carry Trade: When you buy a low-interest-rate currency and sell it to buy a high-interest currency.
When the strategy is considered for GBPCAD pair:
The current CAD interest rate is 0.25% while that of GBP is 0.1%. You buy the pair GBPCAD and take a long position. You are more likely to get profit with this kind of trade.
There are Pros and Cons associated with the strategy:
Commonly used with no complexity.
If the interest rate changes the strategy is likely to cause loss.
Arbitrage with the example of GBPCAD
Due to the decentralized market, there will be some changes in the system throughout the day. This causes the difference in commodity prices in the different markets. This happens without warning. Those who keep a sharp eye on the charts will recognize the change. Traders take advantage of these changes and profit from it. Suppose an investor buys the GBPCAD pair for a small price in Canadian Market and then sells it at a profit on London Market.
It provides varied trading chances.
Need to be available to sense the changes.
Scalping Strategy with the example of GBPCAD
Scalping is a broad term in Forex marketing. Scalping is a market strategy in which a trader trades a few pips. A pip is defined as the smallest amount by which the currency rate can fluctuate. The pair opens its position for a short time, it could be minutes or seconds, and then closes it. The rise and fall in the market rates help traders to increase the percentage of profits. And as the trade involves bits the profit or loss will be small. This strategy is risky. The trade could rapidly turn into a loss if the time of opening a position is not carefully assessed. There is enormous fluctuation in market prices. The time of the opening and closing of a trade should be decided very carefully. This strategy can take place many times a day. The strategy is stressful because it requires constant monitoring and a brief spell away from the computer could result in heavy losses.
For Example, if you have selected a short GBPCAD with the trade of 5 pips, you could immediately lose 5 pips. But as soon as the bid price goes up above the asking price you must convert it into a profit.
Little Fluctuations in prices can give a big profit.
It stresses out the trader since anything can happen at any moment.
News trading with GBPCAD
In the above Forex pair, the effect of politics and a country’s economic growth is important. A small setback can completely change the exchange rates of the currency.
The trader has to make sure that the market rate variations favor his side. The economies of Canada and the USA are closely linked so any setback in either country affects CAD transactions. So when dealing with the pair GBPCAD you need to watch the economic situation of the UK, Canada and the USA.
The profits can increase with the rise in economies.
Brokers increase their rates.
The price changes can cause great losses as well.
Day Trading Strategy
Like scalping when the time frame is small, day trading also involves time frames. The difference between scalping and day trading is that in day trading a trader opens its position and the position closes after the day has ended. The positions cannot be opened overnight otherwise it can cause great loss. The market trends need constant observation.
The position of the trades gets decided after the day ends.
No risk of overnight loss.
This strategy can only profit if considered for the long run.
Hedging is a trading strategy that protects the traders’ assets from any loss. Hedging is a contract or bond that enables the trader to buy stocks and funds, without fear of loss. The strategy covers a significant portion of the loss and thus provides security to the assets. The hedging contract is time sensitive and does not function endlessly.
Prevents huge losses.
Sometimes the contract cost is greater than the profit.
If you are targeting large profits rather than profits from a few small trades position trading is the right type of trading for you. Position trading is long term trading which can take months or years to transact. Since a long period is involved, there is less risk associated with it. You will need to define the stop/loss point. This type of trading strategy needs the traders to be patient. For this type of trading it helps if the trader is experienced and has a sound knowledge of forex market trends. Traders must be observant of the uptrends and downtrends of the market and investments should be made considering them.
If a Position Trade between the Pair GBPCAD is to take place, look for the Uptrend on the selling commodity and predict the trend for the upcoming year and invest your deposits in it. After time, the trader will profit.
Doesn’t need constant monitoring
Requires thorough knowledge about the forex trends.
Fibonacci Retracement Strategy
It is also called a breakout strategy. It guides the trader to move past the ranges. This strategy is for those who have a sound knowledge of market trends. The strategy works by identifying:
- The support and resistance level of the trend.
- The change in trend
- The Breakout Point associated with the trend
- Those who deal with the strategic move in the breakout direction.
The Points refer to a sudden rise in the trends and it may cause huge profits.
The strategy uses the volatility of the trend to gain from it.
The strategist enters immediately after the breakout and leaves after the volatility disappears.
It provides secure trades.
The breakpoint identification helps in the understanding of the market.
The newbies can benefit from it.
It is difficult to find the breakout point and trends.
Trend Trading Strategy With The Example Of GBPCAD
Trend Trading Strategy requires a certain level of expertise. Traders manipulate the direction of market momentum and use it to get maximum profit. It requires a long time to profit. It involves momentum of trends. Several trends have to pass during this trade to make it profitable.
For Instance, presume a trader adopts the trend strategy while trading the pair GBPCAD, and the market trends are upstream. Traders will be attracted to the pair. This causes the market trends to increase. And the profits will be high.
When a currency pair is trending lower, trend traders may choose to enter a short position. A downtrend is defined by lower swing lows, and lower swing highs.
- Gives multi-trading opportunities.
- There is less risk
- Long term Engagement
Swing trading is a hybrid of day and position trading, with trades lasting from a few days to many weeks.
Swing traders are just looking for multi-day chart patterns that will allow them to profit from larger price changes or swings than would ordinarily occur in a single day.
Swing traders spot potential trends and hang on to selected trades for a long time, anything from two days to several weeks.
It’s perfect for people who can’t monitor their charts during the day but can devote a few hours each night to market research.
The idea is to concentrate on the price movement of currency pairs so that you can enter at a reasonable level and later leave with a profit.
Depending on your strategy, you may be able to keep your trade open for several weeks.
Swing trading looks for swings within a medium-term pattern and only enters when a strong trend arises.
This is ideal for individuals who don’t have enough time to trade.
It is a more laid-back approach to trading than scalping.
Needs extensive research
Swap rate for opening overnight positions
There’s a trading plan for the conclusion of the day.
This trading strategy takes place at the end of the day. Trading decisions are made shortly before or just after the markets close.
End-of-day traders trade at the close of the day, whereas day traders follow charts throughout the day, entering and canceling trades as they see appropriate.
If you place your transactions at the end of or after the trading day, you are not distracted by news, changing market prices, or day-to-day life.
End-of-day trading setups help you cut through the clutter, resulting in cheaper rates and the ability to trade with limit and stop orders. This strategy is ideal for people who want to continue working at their current job.
It doesn’t require a lot of time.
These trades are conducted during less active hours.
Required Time To Conduct A GBPCAD Trade
The most important movement of GBPCAD usually occurs when a European trading session opens. Strong trends could also be seen if economic data from USA or the UK are released during the time that the European-New York session coincide. This four-hour overlap occurs between 1:00 pm and 4:00 pm Greenwich Mean Time. This is the peak time for trends to change. Other sessions like the Asian sessions do not often affect the GBPCAD Forex pair. But we can still see high trading volumes when there are major market announcements from these The UK and Canada.
Any of the above trading strategies can be adopted by a trader. A trader needs to watch the situation and resources of the countries to ensure success. GBPCAD is affected by fluctuations in the British pound, the Canadian dollar and the US dollar. The CAD exchange rate is affected by US economic events. The GBPCAD pair is dependent on GBP / USD trends. The Canadian dollar is a commodity currency and is dependent on commodity prices, especially oil prices. As the price of oil goes up, CAD goes up and GBPCAD goes down. Conversely, as crude oil prices fall and GBPCAD prices rise, CAD becomes vulnerable to GBP.