The British pound (GBP) is the oldest currency still in use in the world today. It was first issued as legal money in the year 760 AD. According to the CME Group, the British pound and US dollar are underwritten by more than $250Bn in trade annually, which makes it one of the most actively traded currencies in the world. But what is a British pound futures trading strategy?
The British pound futures strategy is a futures contract to receive or deliver the specified amount of GBP on a future date, at an already agreed exchange rate. Its pricing is based on the future exchange rate of the British pound to the US dollar, and it is settled by delivery of the underlying — the GBP. The methodologies and techniques for trading this futures contract are referred to as the British pound futures strategy.
In this post, we answer some questions about the British pound futures trading strategy. We also provide you with a backtest.
What are British pound futures?
The British pound futures is a futures contract in which the underlying asset is the British pound. In other words, the contract is an agreement to receive or deliver the specified amount of GBP on a future date, at an already agreed exchange rate.
The pricing of the contract is based on the expected future exchange rate of the British pound to the U.S. dollar, so it allows investors to take positions on the value of the British pound sterling currency versus the US dollar. It is settled by physical delivery.
What is a British pound futures strategy?
A British pound futures strategy refers to the methodologies and techniques for trading this futures contract to make profits. This includes the market timing, use of leverage and position sizing, risk management, and so on.
British pound futures strategy backtest
We have a long list of futures trading strategies. From that trading list, we have a British Pound trading strategy that we sell. The strategy is based on the Average True Indicator. In addition, we use a price pattern. The exit is also based on a price pattern.
This is what the equity curve looks like when we backtest using TradeStation:
The strategy has 670 trades, which means it trades frequently, and the average winning trade per contract is 180. The win rate is 58%, and the profit factor is 1.65.
Our experience is that forex and currencies are very hard to trade, so we always recommend trading with caution:
What is the seasonality of British pound futures?
The British pound futures have been noted to perform better during the months of December and July. The USD is generally weaker during that months, as people convert their USD to local currencies for the Christmas and Summer holidays. GBP performs poorly during the months of January, February, and March. See the chart below:
What moves the British pound — What affects the British pound the most?
The British pounds exchange rate against the USD is affected by economic reports in the UK and the US, such as monetary rate reports (interest rates and policy statements) from the Bank of England and the Fed, inflation reports (consumer price index and the producers’ price index), growth data (GDP, manufacturing PMI, services PMI, and retail sales), and job reports (Nonfarm payroll).
Other factors include sociopolitical events in both countries, such as elections, referendum (Brexit), and geopolitical tension.
How are British pound futures traded?
British pound futures contracts trade on the CME Group’s futures exchange. The contract can be traded from any part of the world through CME’s Globex electronic platform from Sundays to Fridays from 5:00 p.m. to 4:00 p.m. CT the next day, with a one-hour break each day.
One British pound futures full contract is equivalent to 62,500 British pound sterling. The quarterly contract months are Mar, Jun, Sep, and Dec. Settlement is by delivery method, and the last trading day is the second business day immediately preceding the third Wednesday of the contract month.
On the Eurex exchange, EUR/GBP, GBP/USD, and GBP/CHF futures contracts are also traded.
How do you start trading British pound futures?
You can trade the British pound futures through a futures broker, which can grant you access to the exchange where the contract trades. So, to start trading, you have to register with a futures broker and fund your account.
You can also trade the market via an online CFD broker, such as IG. A CFD contract is a contract to exchange the price difference between the time a trade is opened and when it is closed. It allows you to trade the price fluctuations without having to concern yourself with the delivery of the asset.
What is the British pound trading at?
As of November 23rd, 2022, the British pound futures were trading at $1.1922 per pound. You find the chart on the CME platform.
Note that the price changes from time to time, so what is quoted here may not be the price it would be trading when you are reading this post. You can click the link to get the real-time price on the CME platform.
What’s the British pound futures hour?
The British pound futures trades on the CME Globex electronic platform from Sundays to Fridays from 5:00 p.m. to 4:00 p.m. CT the next day, and there is a one-hour break at the end of each day. For CME ClearPort, the schedule is Sunday – Friday, 5:00 pm – 4:15 pm CT, with a 45–minute break each day beginning at 4:15 pm.
Where can I find trading charts?
You can find the trading chart on any trading platform you are using if it offers direct chart services. If your platform does offer charts, you can subscribe to trading charts via a third-party platform, such as MultiCharts.
A more common option is TradingView, which offers free access to charts of different instruments. However, to connect to your broker, you have to subscribe to the Pro services.
You can also access the chart of the British pound futures via the CME platform.
What are the trading symbols for British pound futures?
On the CME’s Globex platform, there are two contract specifications of the British pound futures: the full contract and the micro contract. The trading symbol for the full contract is 6BZ2, while the symbol for the micro contract is M6BZ2. The CME ClearPort code is BP.
Of course, the symbol differs from platforms, and Eurex would have its own symbol for the British pound futures contracts — though not shown on their website.
What is the specification for the British pound futures contract?
For the full British pound futures contract, one contract is equivalent to 62,500 British pound sterling. So, the dollar value is gotten by multiplying with the dollar exchange rate. The minimum fluctuation is .0001 per British pound increment ($6.25/contract). For the micro contract, the contract size is 6,250 British pounds.
There are twenty months listed contracts with quarterly cycles (Mar, Jun, Sep, Dec). Settlement is by delivery method, and the last trading day is the second business day (usually Monday) immediately preceding the third Wednesday of the contract month.
Why should you start trading British pound futures?
The most common reason business people trade the British pound futures is to hedge foreign exchange risks for their international business transactions. For traders, the reason is to speculate on price fluctuations to make profits.
Some traders also simultaneously buy and sell the British pound contract on different platforms to benefit from any imbalance in prices. This is known as arbitrage trading.
What is the contract size?
For the full or standard contract size of the British pound futures, one contract is equivalent to 62,500 British pound sterling. So, the dollar value is gotten by multiplying with the dollar exchange rate. For example, with the GBP/USD exchange rate at 1.1922, the dollar value of the full contract of the British pound future would be $74,512.50
For the micro contract, the contract size is 6,250 British pounds. So, the dollar value would be 6,250 x 1.1922 = $7,451.25.
What is the tick size?
What is the minimum price fluctuation for British pound futures?
The price quotation is in U.S. dollars per pound to four decimal places, so the minimum price fluctuation would be in four decimal places too. For outright fluctuation, the minimum fluctuation is 0.0001 per GBP increment (equivalent to $6.25 per contract tick size).
The consecutive months spread is $0.00001 per GBP or $0.625 per contract (only on the CME Globex platform), while all other spread combinations use 0.00005 per GBP or $3.125 per contract.
Are there any ETFs?
Yes, there is a British pound ETF that trades on the US stock exchange — Invesco CurrencyShares British Pound Sterling Trust (FXB). The ETF offers exposure to the British pound relative to the US dollar, increasing in value when the pound strengthens and declining when the dollar appreciates. It can be used to hedge exchange rate exposure or bet against the US dollar.
What factors affect British pound prices?
They include economic reports in the UK, such as monetary rate reports (interest rates and policy statements), inflation reports (consumer price index and the producers’ price index), growth data (GDP, manufacturing PMI, services PMI, and retail sales), and sentiment reports (the Gfk Consumer Confidence and the Nationwide Consumer Confidence). Other factors include sociopolitical events, such as elections, referendum (Brexit), and geopolitical tension.
What is the all-time high for British pound futures?
Historically, the all-time high for the British pound against the US dollar is $2.86 per pound, which was reached in December 1957. In the last 10 years, the highest for the British pound futures has been $1.7184 in July 2014.
What are the biggest risks in trading British pound futures?
The biggest risks in trading British pound futures trading come from the adverse movement of prices. Given that it is a leveraged instrument, the losses are calculated based on the actual worth of the contract size traded. So, if you trading with a 10x leverage, a 1% adverse movement would lead to a 10% loss in your account.
What is the settlement method?
The settlement method is deliverable. However, you can still avoid the rigors of physical delivery by closing before expiry or rolling over your contract.
What is the settlement procedure?
On the CME futures exchange, the British pound futures contract is settled through physical delivery of the currency (British pound). However, there are normal daily settlements until Rollover Date. CME Group staff determines the daily settlement of GBP/USD futures (6B) at 14:00 Central Time (CT) based on trading activity on CME Globex. On expiry, the final settlement is by physical delivery.
What is the block minimum for British pound futures?
The block minimum for the British pound futures on the CME exchange is 100 contracts.
What is the difference between British pound futures and Forex for the British currency?
One of the differences is that the spot forex value for the British pound is determined in relation to the spot value of the USD, whereas the British pound futures is priced independently. Also, while the futures contracts have fixed expiration dates, the spot forex pair can be traded indefinitely.
Which forex pair is the same as British pound futures
On the CME exchange, the British pound futures contract is the GBP against the USD, so the forex pair that matches it is the GBP/USD. However, on the Eurex exchange, there are also futures contracts for the GBP against the CHF (GBP/CHF) and EUR against the GBP (EUR/GBP).
What are some important dates for this market?
- 1931 when Britain left the gold standard
- 1944 when the Bretton Woods Agreement was reached
- 1992 when George Soros and co forced the Bank of England to leave the European Rate Mechanism (ERM)
What is the highest GBP has ever been at — its all-time high?
What is the lowest GBP has ever been — its all-time low?
The all-time low for the British pound against the US dollar is $1.035 per pound, which was reached on the 26th of September, 2022.