What To Know When Trading GBP/JPY
Informally known as ‘Geppy’ and ‘The Beast’, the GBP/JPY is among the most popular currency pairs to trade. This pair is viewed as a reliable indicator of global economic health. Both Pound Sterling (GBP) and Japanese Yen (JPY) reflect the economic health and policymaking in the UK and Asia-Pacific region respectively.
Despite being used as an economic indicator, GBP/JPY shouldn’t be treated as a safe pairing for traders who are starting their trading journey. This is due to the high volatility that this pair has, which helps seasoned traders generate potential earnings, but can put beginners at a huge risk.
GBP/JPY pair is popular among traders for several reasons, but the biggest of them all is its volatility, which causes huge price swings that are used by traders to make profits in a relatively short time frame.
This currency pair is a combination of high-yielding and low-yielding currency pairs that creates a variation, which can be used for executing a carry trade. This is a strategy that involves borrowing funds from a low-yield currency to buy a higher-yield currency. The profits are made by moving the money around and leveraging yield differences.
Advantages of trading GBP/JPY
The volatile nature of this currency pair creates a great opportunity naturally for trading profits. Both currencies have a high volume and are also influenced by economic news coming from both countries. The pair moves around 160 pips per day on average, which allows traders to make good profits, especially when they are trading with brokers that offer tight spreads on this minor currency pair. Here is a list of brokers that offer tight spreads on GBP/JPY:
- Fxview – 0.10 pips onwards
- Oanda – 1.5 pips
- ICMarkets – 1.8 pips
- OctaFX – 2 pips
GBP/JPY suits several trading approaches, which include not only short and long positions but also carry trade strategy and CFD trading.
This pair is also ideal for traders who want to trade large, stable currencies with smaller yet highly active currencies.
Disadvantages of trading GBP/JPY
Both GBP and JPY are a part of major economies from different global regions, which makes the currency pair extremely volatile because of the difficulty to predict or track through traditional indicators.
The currency pair is so volatile that at times, even experienced traders find it hard to develop a reliable method to evaluate indicators and timing trades because the traditional triggers, which have proved successful for other currency pairs, can’t be applied to GBP/JPY.
The risks become even higher with CFD trading where you use leverage to open a larger position, which eventually leads to huge losses above your account balance, especially if you are using a brokerage that doesn’t provide negative balance protection (NBP). Still, CFD trading should be approached with caution for any forex pairing, especially GBP/JPY as it will only amplify the risks.
The same can be said for carry trade strategies, which may not have a risk profile similar to CFD trading, but can still leave you exposed to economic events and unpredicted trends that can render your strategy useless and cause huge losses to your trading account.
GBP/JPY can be a great currency pair for capitalizing on volatility, but don’t trade this pair until you have a good strategy to steer clear of steep losses and make decent profits.
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