Tips On How To Trade The Currency Pair EUR/GBPThe foreign exchange (Forex) market is an active one where several currency pairs are traded daily. Notably, one of the most popular currency pairs is EUR/GBP.
EUR is the Euro, the official currency of most European countries, including Italy, France, Germany, Spain, etc.
Conversely, the official currency of the United Kingdom is GPB (Pound Sterling). Both EUR and GBP currencies have higher individual values than the USD (United States Dollar). If you intend to trade the EUR/GBP, here are tips that can help you.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Tips On How To Trade The Currency Pair EUR/GBP
Understand the base and quote currency
When it comes to trading forex pairs, there’s always a base and quote currency. The pair results from a price comparison of the base and quote currency, which indicates the needed amount of the quote currency for buying the base currency.
In the case of EUR/GBP, the EUR is the base currency, as it comes first, while the GBP is the quote currency, as it comes second.
So, when it comes to trading EUR/GBP, we are looking at how much GBP is needed to purchase EUR. In other words, you are selling GBP to buy EUR.
Furthermore, there are two prices involved, which include the bid price and the asking price. The bid price is the quote currency amount for buying the base currency, while the asking price implies the quote currency amount acquired after selling the base currency.
Consider its low volatility
Volatility has to do with how fast or slow trading prices change. The forex market is volatile, considering the large number of currencies involved. However, the EUR/GBP pair has low volatility; their prices don’t change significantly very often.
As mentioned earlier, both EUR and GBP are among the most strongest currencies in the world. European countries use the Euro while the UK uses the Pound Sterling; hence, the EUR/GBP is a relatively stable currency pair, which makes them heavily traded. A major change in their prices would draw massive attention in the forex market and outside it.
Follow the economic news
When trading any currency pair via forex brokerage houses, it is ideal to follow the economic news so you don’t miss any event that could drive a major price change. This applies as well for the EUR/GBP currency pair; besides, EU countries and the UK are involved.
You should not miss important updates, including new monetary policies, capital input, capital withdrawals, inflation, etc. Notably, the short-term rates of both currencies are influenced by economic data announcements.
Therefore, you should check daily in the morning and evening for economic updates about the GBP and EUR. Furthermore, it is ideal to check political news because they can influence investor decisions.
Trade at the right hours
Trading activity in the Forex market usually reaches a peak during certain periods at major financial cities in the world. Hence, Forex trading is distinguished into three activity sessions: North America (New York), European (London), and Asian (Tokyo) sessions. Notably, the European Forex session in London starts from 7 am to 4 pm (GMT).
Although you can trade at any time in the 24/7 forex market, it is ideal to trade the EUR/GBP pair during the European Forex session; a simple way to remember this is “don’t trade when it is dark in London.”
Look out for trends
If you want to perform a profitable EUR/GBP trade, it is vital to identify ongoing trends. For the EUR/GBP pair, you should either use the EUR/GBP price analysis or a technical trend indicator.
Take, for instance, the 200-Day Period Simple Moving Average; if the chart is trending down and the prices shift below the moving average, it is a bearish trend. To avoid getting false trend signals, you should follow only short signals of the EUR/GBP pair.
Similarly, if the chart is trending up and the prices shift above the moving average, it’s an upward trend. To avoid getting false trend signals, you can follow only long signals of the pair.
Look out for correlation with other pairs
While you have your eyes set on EUR and GBP, you should always look out for other forex pairs and how they correlate. Ideally, you should look out for correlation from the past three months.
Pairs with strong correlation are likely to have EUR or GBP; For example, EUR/JPY and GBP/JPY.
With correlation, you can get trading signals for the EUR/GBP pair. Likewise, currencies with strong correlation are ideal for hedging.
Forex trading is a notable means for making money on the internet, while the EUR/GBP pair is a profitable one to trade.
However, as always advised, Forex trading is risky; there’s no guarantee of returns or profits. Therefore, you should only put in what you can afford to lose.