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UK and Forex Markets – Trading in GBP

Currencies / British Pound Oct 10, 2016 - 08:49 AM GMT

By: ....

Currencies

Forex (short for foreign exchange) trading is a speculative option that has increased in attractiveness over the past few years. Forex brokers offer trading that comes free of commission, and with the chance of making massive gains. It's easy to get going with trading, and forex markets do not have the same negative reputation as some other markets, such as binary options.


If you are in the UK, and you want to start trading in forex, you're probably going to want to start trading in a currency that you're familiar with – namely the 'good old' Great British Pound. The question you'll want to know the answer to is how safe is it to trade in GBP, and what gains (or losses) are likely? - Investoo has some great free training courses.

First of all it has to be underlined that forex trading in GBP is the same as trading in any other currency – it comes with risk. It's a massive market full of experienced traders – traders whom work for the largest banks and financial institutions in the world. It is not a market for the unprepared. If you are going to be trading in foreign exchanges then you need to do your homework before you even think about investing a single penny of your own (or anybody else's money).

You also need to understand that with forex trading there is actually no 'exchange' (like the stock exchange) – trades takes place between brokers, fund managers and banks. Ten financial-based firms are responsible for three quarters of all trades that are made.

Everything you wanted to know about the Great Britain Pound
The pound (also called sterling, as when created it was made from sterling silver and weighed one troy pound) is the fourth most-traded currency in the world, after the US dollar, the Euro and the Japanese Yen. It is also the third most popular reserve currency (a currency held by banks and other financial institutions in order to pay off international debut obligations or to influence exchange rates).

The pound used to be the most dominant currency in the world, thanks mainly to the success of the British Empire (as recently as 1913 a quarter of the world's population lived under the rule of the British government). The dire economic consequences of the second world war, the independence recognised by Great Britain of its former territories and the success of the USA post-WWII all saw a fall in GBP's dominance.

Despite the creation of the Euro in 1999, the UK was allowed to remain a member of the European Union and retain the pound as its currency.

The pound and the UK economy
The UK has a highly globalised economy, and London is regarded as the world's second-most influential money market after New York City. In 2016, the World Economic Forum announced that it considered the UK economy to be the seventh most-competitive in the world.

The main concern for the UK economy is the percentage of debt that contributes to the country's GDP. In the late 1990s this peaked at fifty percent, but the UK recovered to show consistent improvements until the banking crisis of 2008. The UK's national debt now stands at ninety percent after falling as low as thirty-six percent as recently as 2002.

The main considerations of trading in sterling
Despite the UK's tumble as a globally-competitive economy (it was ranked as low as tenth in 2015), GBP still holds significance thanks to its history and it being the third most widely-held reserve currency. The standing of London as a major global financial centre is also of importance in this regard.

The UK has always been a prudent and somewhat unexciting economy. Economists believe that the UK will continue to adopt policies that are designed to create slow and steady growth. Whichever political party is in power, the decisions made tend to be low-risk. This meant that after the 2008 financial crisis the UK did not suffer as much as some other European countries, such as Greece, Italy, Portugal and Ireland.

Despite recent falls in the value of sterling (mainly thanks to the uncertainty caused by the unexpected 'out' Brexit vote) it remains one of the strongest currencies in the world, and one of the few major currencies that is worth more than the US dollar.

Trading in GBP – what you need to know
It is notoriously difficult to predict currency rates. Most predictive models only work for brief periods of time. Models that are based on economics are infrequently useful for short-term trades. Economic conditions do though suit long-term factors.

The UK is a small country (population 64 million, one fifth of the population of the US) that has a global economy that trades with all major and most minor nations. It also has a strong history of economic leadership across the globe. Its economy is based on a decent balance of services and manufacturing, and it adopts policies that are geared towards stability and steady growth. It's a resolute alternative to the dollar, and GBP will remain an important global currency for the foreseeable future.

GBP/USD has long been considered one of the top currency pairs, and GBP/USD trades count for over ten percent of all trades made on foreign currencies exchanges. This exchange is characterised by price instability and high levels of volatility. This makes it ideal for short-term traders who prefer to trade aggressively. Trading GBP/JPY is also worth considering, but the most predictable currency pair involving the GBP remains GBP/USD.


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