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What To Know When Trading GBP/JPY

   

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Known informally among forex traders as “Geppy,” the GBP/JPY pairing is viewed as a reliable indicator of global economic health. These individual currencies provide a strong reflection of economic health and policymaking in both the Asia-Pacific region as well as Western Europe.

But this reliance on GBP/JPY as an economic indicator shouldn’t mislead traders into treating it as a safe pairing for beginners to get their feet wet with. Though the pairing’s volatility is great for generating potential earnings, it also creates significant risk for forex traders. This is why “Geppy” has one of the most fearsome reputations among all forex pairs.

Profit-earning trading is possible, but traders should approach this pairing with caution and familiarize themselves with the complexities of this forex offering.

The Danger of Trading ‘The Beast’

As an economic linchpin connecting major economies from different global regions, GBP/JPY is subject to extreme volatility that is often difficult to predict or track through traditional triggers or indicators. 

Beginning traders are almost always discouraged from initiating trades with GBP/JPY due to this significant risk. Sophisticated trade evaluation techniques are required to make an educated guess on the pair’s price movement, and only time and practice can give traders the skills they need to analyze these possibilities with any remote sense of accuracy. 

Even experienced traders struggle to develop a reliable method for evaluating indicators and timing trades, in large part because the traditional triggers that have proved to be successful with other currency pairs can’t be easily applied to GBP/JPY.

The risks are even greater with contract-for-difference (CFD) trading, where a leveraged position can quickly lead to enormous losses in excess of your account balance—especially if you’re using a brokerage that doesn’t offer negative balance protection. Most traders know that CFD trading is something to approach with caution for any forex pairing, and GBP/JPY only amplifies those dangers.

Tracking the Impact of Energy Commodities

Traditional triggers for forex price movements—such as economic reports, policy proclamations from both the Bank of England and the Bank of Japan, and political news—can all affect the value of GBP/JPY. But the potential price implications of this news can be tough to evaluate because these triggers don’t affect GBP/JPY in quite the same way that they would for other pairings.

One of the more reliable price influences is the role of energy commodities for both Great Britain and Japan. While Great Britain is a major exporter of crude oil around the world, Japan is one of the biggest importers for that product, and it’s the second-largest importer of natural gas. JPY tends to move up or down in conjunction with shifts in the price of global energy. 

When crude oil or natural gas prices plummet, as happened in late 2014, it can trigger a downgrade in GBP’s value while providing an economic boost to JPY. When both movements happen in concert with each other, swift, dramatic GBP/JPY price fluctuations can occur.

Interest Rates

The UK has historically had high interest rates and Japan has had 0 or negative rates for the last couple of decades which has made the carry trade or being long GBP and short JPY holding positions overnight to receive positive swap interest very popular. This can be a successful strategy but any short term volatility can easily wipe out the positions held. The last time this happened was January 2019.

When to Time Your Trade

Because of the time difference between Japan and Great Britain, economic reports and other market-affecting news typically have no overlap between the two countries. There is, however, a three-hour window of overlap between the Asian and European markets, running from 5am to 8am GMT which historically features the greatest amount of liquidity for JPY.

Key economic releases in Japan can also take place between 9:30 p.m. and 3 a.m.GMT. Traders should keep an eye on news developing at this time to get the jump on possible price movements before European traders wake up and try to join the action.

Some experts also recommend watching specific times during the day when official news in Japan tends to get released, including 6:30 p.m., 1:30 1.m., and 3 a.m. GMT.

Conclusion

GBP/JPY is one of the highest risk/reward propositions on the forex market. Although traders will likely be drawn to the earnings potential, they should also wait to engage this pair until they’ve gained experience in evaluating charts and indicators and are confident in their ability to analyze GBP/JPY and execute a trading strategy.

Geppy can be a great pairing for capitalizing on volatility, but don’t mess with “The Beast” until you have a good game plan in place to steer clear of steep losses and turn a nice profit.

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Disclaimer:

The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

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