GBPCAD Trading Guide: How to Trade the GBP/CAD FX Pair

The GBPCAD currency pair may offer unique trading opportunities for traders due to London's status as a global financial centre and Canada’s role as the biggest oil exporter to the United States.

This guide provides insights into the various aspects of the GBPCAD exchange rate, including how to trade GBPCAD CFDs and the factors affecting the pair’s price movements.

Main Points:

• The British pound (GBP) and the Canadian dollar (CAD) are generally categorised as hard currencies due to their countries’ economic and political stability.
• GBPCAD is the ticker symbol used to represent the exchange rate between the Pound and the Canadian dollar.
• The GBPCAD currency pair is classified as a cross or minor due to the absence of the US dollar.
• Factors affecting the GBP/CAD exchange rate are economic data and monetary policies from the UK and Canada, including crude oil prices, and geopolitical events.

The History of the GBPCAD (British Pound and Canadian Dollar)

History of the British Pound

During the rule of Henry VII in 1489, the pound coin was first introduced as a means of exchanging goods and services. Following the establishment of the Bank of England (BoE), the bank began issuing pound notes in 1694, which circulated in England. Initially, the British currency system was based on pounds, shillings, and pence, with 1 pound to 20 shillings and 240 pence. This system required complex arithmetic for conversions and transactions. However, to simplify currency transactions, the pound was decimalised in 1971, making 1 pound equal to 100 pence. The British pound also served as legal tender in Australia, New Zealand, and Canada. Although this currency has been replaced by the national currencies in these countries, it remains the official currency of the United Kingdom.

History of the Canadian Dollar

Before the establishment of the Canadian dollar (CAD), the Canadian pound served as the country’s currency of Canada. However, after the Confederation in 1867, the need for a unified currency system prompted the Uniform Currency Act in 1871. This law established the Canadian dollar as the national currency across all provinces of Canada and the first banknotes were then issued by the Bank of Canada (BoC) in 1935.

Understanding the British Pound - Canadian Dollar Currency Pair

What Is the British Pound?

• The British Pound serves as the official currency for domestic transactions in Britain, the British Antarctic Territory, the Isle of Man, Guernsey, and the South Sandwich Islands among other countries.
• It is the world's oldest major currency still in use.
• It is denoted by the symbol ‘£’ and abbreviated as ‘GBP’.
• A frequently used slang for the British pound is “Quid”.

What Is the Canadian Dollar?

• The Canadian dollar is the official legal tender for everyday domestic transactions in Canada.
• It is denoted by the symbol ‘C$’ and abbreviated as ‘CAD’.
• The nickname for the Canadian dollar is the "Loonie".
• Given Canada’s major contribution to global crude oil exports, the Canadian dollar is classified as a commodity currency.

The Importance of the Pound Sterling and the Canadian Dollar

The Pound sterling and the Canadian dollar dominate in several aspects among the world's major currencies.

• The British pound and Canadian dollar are regarded as hard currencies due to the economic and political stability of their respective countries.
• Both Britain and Canada are members of the G7 countries and the United States has been their biggest trade partner.
• According to the International Monetary Fund (IMF) in 2023, the British pound was the fourth most-held reserve currency in the world followed by the Canadian dollar.
• In terms of trading volume in 2023, the British pound ranked fourth among the world's most-traded currencies while the Canadian dollar ranked 7th.

Characteristics of the GBPCAD Currency Pair

• The GBPCAD currency pair comprises the Pound sterling (GBP) and the Canadian dollar (CAD).
• The GBPCAD is considered a cross or minor forex pair because it excludes the US dollar.
• Based on available data in June 2024, the GBPCAD currency pair has a volatility rating of 0.5%.
• As of 2024, the GBPCAD currency pair ranks 17th among the most traded forex pairs.
• The GBPCAD can offer increased liquidity and high volatility during the London and New York session overlap.

What Is GBP/CAD Trading?

GBPCAD is the ticker symbol for the exchange rate between the Pound sterling (GBP) and the Canadian dollar (CAD). It tells you exactly how much of the quote currency (GBP) you can get for one unit of the base currency (CAD). Take for instance, if the GBPCAD exchange rate is 1.5, this means the value of 1 Canadian dollar is equivalent to 1.5 pound sterling.

The exchange rate of the GBP/CAD is dynamic and it oscillates continuously based on the relative strength of the pound and the CAD. This inherent volatility can present opportunities for traders to execute long or short positions on the price movement of the GBP/CAD exchange rate.

Going Long vs Going Short

• A long position on GBPCAD implies that you intend to profit from the rise in the price movement of the GBPCAD exchange rate.
• Conversely, a short position on GBPCAD implies that you intend to profit from the decline in the price movement of the GBPCAD exchange rate.

However, because markets are volatile and can move against your position, it is important to be aware of the factors that can cause the rise and fall of the GBPCAD exchange rate.

Factors Affecting the GBP/CAD Exchange Rate

UK and Canada Monetary Policies

Monetary policies in the UK and Canada are established by their respective central banks. Both the Bank of England (BoE) and the Bank of Canada (BoC) are responsible for stimulating economic growth and achieving economic milestones through monetary policy decisions like quantitative easing, raising or lowering interest rates and adopting dovish or hawkish policies. Differences in UK and Canadian monetary policies can affect the relative demand of their currencies and ultimately the direction of the GBPCAD exchange rate.

UK and Canada Economic Reports

High-impact news reports that can impact the price movement of the GBPCAD exchange rate are released periodically by the institutions responsible for collating and publishing economic data in both the UK and Canada.

In the UK, the office responsible for collecting and disseminating data is the Office of National Statistics (ONS) while in Canada, the national agency is referred to as Statistics Canada. Examples of high-impact news reported from these agencies are inflationary data, trade balance, employment data, consumer price index (CPI), oil inventory data, etc.

The Crude Oil Market

The value of the Canadian dollar (CAD) is heavily influenced by crude oil prices because Canada is a major producer and the biggest exporter of crude oil to the United States. Similarly, the UK economy relies on oil imports. This shared dependence on crude oil makes the GBPCAD exchange rate affected by disruptions and major events in the oil and gas sector.

Geopolitical Events

Fluctuations in the price movement of the GBPCAD exchange rate are also affected by geopolitical factors like elections, Brexit, trade tensions, and the global pandemic.

As of 2023, the United States remained the biggest trading partner to Canada and the UK. This makes the GBPCAD exchange rate susceptible to political and economic factors in the United States.

What Are GBP/CAD Trading Strategies?

Price Action Strategy

Price action trading is an approach that prioritises the analysis of price movement solely based on candlestick formations and trading chart patterns without the use of indicators. Popular examples of candlesticks formations are pin bars, engulfing patterns, harami etc. They offer insights into market sentiment, potential trends as well as trend reversals, and they can be used for day trading and swing trading.

Trend Trading Strategy

One of the core tenets of trading is to align long or short positions to the direction of the prevailing trend. Therefore, trend trading can be effective for trading the GBPCAD currency pair as it aims to profit from price movement in a specific direction either an uptrend or a downtrend.

When the price movement of GBPCAD makes lower lows, this implies a downtrend. In contrast, an uptrend is characterised by the formation of higher highs.

Traders can utilise tools like trendlines and moving averages to identify trends and potential entry and exit points.

GBPCAD Breakout Trading Strategy

Breakout trading aims to capitalise on price movement when it expands out of a range or a key support or resistance level with strong momentum.
To capitalise on breakouts, traders may have to monitor price movement or set up pending orders using either a buy-stop when expecting a bullish breakout or sellstops when anticipating a bearish breakout.

Breakouts with increased momentum are prone to happen during periods of economic data reports from the UK and Canada.

Overbought and Oversold Trading Strategy

This strategy focuses on identifying potential turning points in the price movement of GBPCAD by recognising when it is excessively overbought or oversold.

Technical indicators like the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) serve as valuable tools for highlighting such market conditions.

By interpreting these signals, traders may position themselves to profit from anticipated market reversals.

How to Trade GBPCAD CFDs

If you're interested in speculating on the GBPCAD exchange rate without having to own either the British pound or the Canadian dollar, contracts for differences (CFDs) enable you to do so.

By trading the GBPCAD CFDs, traders can potentially profit from the difference in the GBPCAD exchange rates between the price points where they open and close their positions. However, it is important to note that CFDs are leveraged instruments, which pose a high risk of significant financial loss.

Calculating Profit and Loss in GBPCAD CFD Trades

Understanding profit and loss (P&L) is crucial in GBPCAD CFD trading. Here's the formula for calculating net profits and losses in a GBPCAD trade:

• Formula: Contract Size (Units) x Number of Pips Moved = Net P&L

Example of a Long Position (Buying GBPCAD)

If you buy a standard contract (100,000 units) of GBPCAD at 1.5240 and the price increases by 15 pips to 1.5255:

• Profit = (100,000 units) x (+0.0015 pips) = +£150 (Gain)

However, if the price declines against your long position by 10 pips to 1.5230:

• Loss = (100,000 units) x (-0.0010 pips) = -£100

Example of a Short Position (Selling GBPCAD)

If you sell a standard contract (100,000 units) of GBPCAD at 1.6240 and the price decreases by 20 pips to 1.6220:

• Profit: (100,000 units) x (+0.0020 pips) = +£200 (Gain)

However, if the price increases against your short position by 10 pips to 1.6250:

• Loss: (100,000 units) x (-0.0010 pips) = -£100 (Loss)

Steps to Buy and Sell GBPCAD CFDs With Plus500

To begin trading GBPCAD CFDs, you can take the following steps:

1. Choose between opening a demo or a real trading account.
2. Access the trading platform on your desktop or mobile device.
3. In the instruments menu, select 'GBPCAD' under the 'Forex - Minor' section.
4. Based on GBPCAD market analysis, decide on either a long position (buy) or a short position (sell).
5. Prior to executing a trade, set up your risk management parameters and select an appropriate contract size for each trade.
6. Click the "Buy" or “Sell” button to confirm your trade.

What Are the Trading Hours for GBPCAD CFDs?

The foreign exchange market operates 24/5, excluding weekends. This allows for continuous trading of GBP/CAD CFDs on Plus500's user-friendly App or WebTrader platform. You can monitor GBP/CAD price movements in real-time and execute trades anytime between Sunday 10:00 PM CET and Friday 10:00 PM CET.

* Please note that trading platform hours depend on the individual operator.

Guidelines to Trading GBPCAD

Besides having a well-defined trading strategy. Here are some guidelines for trading GBPCAD.

Monitor Commodity Trends: Keeping track of OPEC meetings, crude oil prices and other major commodities like gold can provide insights into the strength of the CAD against the Pound.

Conduct Fundamental Analysis: By utilising economic calendars, traders can stay up to date with important economic data releases and developments from both the UK and Canada that can result in sudden and sharp movements in the GBP/CAD exchange rate.

Conduct Technical Analysis: Employing the advanced chart types and technical indicators on the Plus500 platform can help identify potentially profitable trading opportunities.

Effective Timing: For cost-effective trading, traders may avoid trading during periods of low volatility to avoid a wider bid-ask spread.

Conclusion

The GBPCAD currency pair offers a unique trading opportunity for traders because it provides exposure to both the financial and the commodity markets. The UK being Canada’s fourth largest trading partner means that the exchange rate between the Sterling and the Canadian dollar is not only influenced by global and geopolitical events but also affected by the economic interplay between the UK and Canada. Although GBPCAD is considered a minor currency pair due to the absence of the US dollar, the British pound and the Canadian dollar are prominent currencies in the forex market, providing substantial liquidity and trading opportunities.

If you’re interested in trading GBP/CAD CFDs, you can do so directly on the Plus500 platform.

Frequently Asked Questions:

What Correlates with GBPCAD?

As of June 2024, GBPCAD is positively correlated with major pairs like GBPUSD and NZDUSD, as well as minor pairs like NZDCAD and EURCAD. Conversely, it is negatively correlated with minor pairs such as EURNZD and EURGBP, as well as exotic pairs like EURCZK.

When Can You Buy and Sell GBPCAD?

Traders may trade GBP/CAD during peak market hours of increased liquidity. This is during London market hours, or between the hours of 10 am and 6 pm CET.

When Is GBP/CAD Most Volatile?

GBPCAD may experience increased volatility during the UK and Canada economic data releases. UK economic reports tend to be released between 09:00 to 11:30 am CET while Canadian economic reports are usually released between 15:30 to 17:00 CET.