When conversing among each other, currency traders often use forex market terminology to ask for pricing and to discuss ideas about the market quickly. An important example of such jargon is GBP/USD which is generally spoken “Sterling Dollar” among English-speaking forex traders. This shorthand notation employs the ISO 4217 standard codes to denote the forex rate of Great Britain’s Pound Sterling against that of the United States’ Dollar.
The GBP/USD Currency Pair
With respect to the currency pair denoted by GBP/USD, Great Britain’s Pound Sterling or GBP is the base currency and so appears first, while the U.S. Dollar or USD is the counter-currency and is written in second place after the slash symbol. Among forex traders, this common market shorthand generally refers to how many U.S. Dollars are equivalent to one Pound Sterling and is also frequently referred to by the slang term “Cable”.
With respect to pip values, this standard forex market notation implies that pips in GBP/USD are expressed in U.S. Dollar terms. Hence, if the GBP/USD rate is currently trading at a rate of 1.5500, then each pip is worth 0.0001 U.S. Dollars per Pound Sterling. On a 1 million Pound Sterling transaction, this single pip value would amount to 100 Dollars.
Spreads in the GBP/USD currency pair can depend on transaction volume and dealing status, but spreads of anywhere from 2 to 5 pips are fairly common in practice. Although the market in GBP/USD is highly-liquid, spreads can widen considerably during major news events and important economic data releases.
GBP/USD is one of the most highly-traded currency pairs in the forex market, ranking among the so-called “majors” and accounting for an estimated 12% of forex trading volume worldwide. The primary interbank electronic trading venue for the GBP/USD currency pair is Reuters Dealing 3000 Spot Matching that is also known as D2 or D3.
Great Britain’s Pound Sterling
The Pound Sterling has the code GBP and the symbol “£”. It is the official currency of the United Kingdom of Great Britain and has been used as legal tender throughout the British Isles since England and Scotland merged in 1707.
In the foreign exchange market, the currency ranks fourth among the most-traded currencies, accounting for approximately 15% of trading volume. Also, the currency is commonly referred to in the market by the terms:
Quid (a plural slang term).
The Pound was decimalized in 1971and now consists of 100 new pence instead of the previous 240 pennies. In addition to bank notes, coins in denominations of 1, 2, 10, 20, and 50 new pence are commonly available in circulation, as well as one and two-pound coins.
The Pound Sterling currently ranks as the world’s third most popular reserve currency after the U.S. Dollar and the E.U.’s Euro. Furthermore, despite the United Kingdom joining the European Union, the Pound has not yet been replaced by the Euro and the prospect of doing so remains controversial within Britain.
Besides its use throughout the British Isles, the Pound is also the currency of the Crown dependencies and the British Overseas Territories, as well as being used in:
The Falkland Islands,
Saint Helena and
The U.S. Dollar
The United States Dollar has the code USD and the symbol “$”, and it is the official currency of the United States of America. In the foreign exchange market, the currency is commonly referred to as the “Dollar”, “Buck” or “Greenback”.
In terms of popularity, the U.S. dollar is the most-used currency worldwide in terms of international trade and foreign exchange, and ranks as the world’s top reserve currency. In addition to the United States, several other countries use the U.S. Dollar as official currency, while in others the Dollar is widely-accepted as currency in private and commercial transactions.
The U.S. Dollar is further divided into coin denominations of 100 cents or pennies, 20 nickels, 10 dimes and 4 quarters. U.S. Dollar banknotes are issued by the Federal Reserve Bank after being printed by the Bureau of Engraving and Printing. The United States’ Mint produces the coins used in the United States.