GBP to CAD
Popular among newcomers and old-hand traders alike, the GBP to CAD pairing represents the fourth and sixth most traded currencies respectively on the world’s forex market. So it’s hardly surprising that it generates a significant volume of daily trading.
A graph depicting the history of the rate between the two currencies shows a jagged mountain range of peaks and troughs as this has climbed and plunged over the years.
How to play
A brief history
While the pound dates back centuries and was decimalised in 1971, the Canadian dollar is the younger currency. The country began its shift away from the colonial pound in the early 1850s and became a decimalised national currency in its own right.
Previously pegged to the dollar of its North American cousin, Canada’s dollar was floated freely in 1970, under the control of the Bank of Canada.
Nicknamed The Loonie, it’s often called a commodity currency because of the country’s strong reliance on energy exports for growth.
Factors affecting the GBP/CAD exchange rate
- The UK’s overall economic performance
- Investors and traders also study GDP reports (issued in preliminary, revised and final versions) when assessing likely future market fluctuations
- Bank of England monetary policy – e.g. using policy tools to control rising inflation
- Similarly, the Bank of Canada often has a strong influence on the Canadian dollar’s value. It has not directly intervened in the currency since 1998. But it does carry out policies aimed at promoting employment and economic growth.
- The Canadian dollar’s stability in growth is influenced by the nation being a big exporter of commodities and materials, from petroleum and wood to minerals and grain. Equally, its closeness to the United States has fortified its import/export industry and helped to give Canada a good foothold in the foreign exchange market.
- In the summer of 2019, for example, despite strong British retail sales, the GBP to CAD exchange rate was at its lowest fear since September 2017 amid growing concerns over a potential no-deal Brexit.
While the global foreign exchange market is accessible 24.7, trading in the UK, in particular, is at its busiest between 8 am and 5 pm British time. Inevitably, at some times during the working day, this trading pair will undergo greater volumes. That’s especially true at times of major market announcements.
Trading this currency pair
Trading on a CFD
As an individual, you can trade in GBP/CAD on a standard foreign exchange contract or a Contract for Difference (CFD). Typically set up between an investor and a broker, a CFD is where one side agrees to pay the other the difference in a security’s value, from the start to the end of the exchange. These tend to be time-limited arrangements.
Essentially, a CFD allows you to speculate on the fall or rise of the price of GBP/CAD. Either take a long position (assuming an increase in price) or a short one, assuming a drop in value. In other words, if you believe the pound will lose value against CAD, you’d adopt a short position and sell CFDs.
Finally, you could spread risk and trade using a variety of forex spread trading and CFDs.
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