British Pound Index
The British Pound Index, also known as the Sterling Pound Index or GBP Index, measures changes in the value of the British Pound relative to a basket of the world’s leading currencies. The GBP index is an interesting instrument for forex traders, with several advantages and unique characteristics compared to standard currency pairs. Find out how to trade the British Pound Index, alongside the best brokers and platforms.
British Pound Index Brokers
What Is The British Pound Index?
The British Pound Index tracks the relative performance of the GBP against other leading global currencies. The index offers a dynamic comparison, reflective of the relative economic health and value of the GBP currency.
The exact composition of the index may vary between brokers, but generally speaking, it is a comparison between GBP and a basket of US dollars (USD), euros (EUR), Japanese yen (JPY), Australian dollars (AUD), Swiss francs (CHF), Canadian dollars (CAD) and Chinese yuan (CNY). The range of currencies that make up the basket are all currencies that are considered important from both a trade and liquidity perspective.
The index is usually reset annually to capture the yearly trade as reported by the International Monetary Fund (IMF).
Weighting
The GBP index is calculated by comparing the British pound to a weighted basket of different currencies. Different baskets will vary somewhat depending on where and how you trade. The Bloomberg Pound Index is a prominent example whose composition, found below, is representative of many GBP indices.
- 42.08% – Euro
- 35.71% – US Dollar
- 8.48% – Japanese Yen
- 4.47% – Swiss Franc
- 3.37% – Australian Dollar
- 3.00% – Chinese Yuan
- 2.89% – Canadian Dollar
Index constituents and relative weights are selected according to trading volume and liquidity analysis.
Currencies that are pegged to the British pound and currencies with weights of less than 2% are excluded. Heavily managed currencies are also capped.
There are no changes in the imminent pipeline for the British Pound Index. However, as a dynamic asset, things will be consistently reviewed to ensure the index remains accurate. For example, should another currency grow astronomically, the composition of the index basket may be reviewed.
British Pound History
The British pound is the earliest currency still in use. It is also known as Sterling or abbreviated to GBP.
The Bank of England is the only official issuer of British pound banknotes in England, though a total of eight banks across the United Kingdom of England, Wales, Scotland and Northern Ireland are authorized as issuers.
The word pound is derived from the Latin word meaning Libra, corresponding to balance and weight.
The first pound coin was issued in 1489, during the rule of Henry VII. Pound notes entered circulation shortly after in 1964, following the establishment of the Bank of England.
British Pound Index Today
Great Britain has been through a period of significant change in its recent history, with its departure from the EU leading to the greatest fall in the value of GBP for many years before a period of stabilization. In the years since 2016’s Brexit vote, prime ministers have changed in quick succession while record-high inflation has led to forecasts of a UK-wide recession in the coming years.
The Russia-Ukraine war has also thrown additional uncertainty across the continent. Given the proximity of the war in addition to Britain and Europe’s dependence on natural resources in the region, it will likely have repercussions for both the British pound and euro.
However, despite the challenging landscape, the British economy remains the fifth-largest global economy.
Live Price Chart
Note, other pound indices include the Bloomberg British Pound Index (POUND) and the UK Pound Sterling Index (IBOXXFXGBPE).
Price Determinants
When trading on the future of the GBP index, it is important to understand the factors that influence price movement:
- Economic Health – One of the most important things to consider is the economic health of the nation. This is a complex evaluation, made up of a number of determinants such as employment levels, government debt and interest rates.
- Inflation – Inflation can have a seismic impact on the value of a currency. In the UK, the end of 2022 saw some of the highest inflation for many decades, up to 10.7% at its peak. This can affect the British Pound Index in a number of ways – not least driving up the price of raw materials, which may reduce Britain’s price competitiveness on a global stage.
- International News Events – Any news event that causes a geopolitical wave in an area linked to Britain – particularly in Europe – will have at least some impact on the strength of the pound. The Ukraine-Russia war, for example, has brought major implications for Europe, not least the uncertainty it has caused around energy supplies. Given the euro’s majority stake in the composition of the British Pound Index, this too can have implications for GBP Index prices.
How To Trade The British Pound Index
There are several options available to traders who want to speculate on the British Pound Index.
Choose An Investment Vehicle
The first step for Pound Index traders is to choose the vehicle they will use. There are several products that would suit currency traders and investors of all stripes, including CFDs, ETFs, and mutual funds.
The right instrument for you will depend on your investment style and risk appetite. Many day traders favor contracts for difference (CFDs) as these allow investors to make straightforward trades on underlying assets that can bring significant profits in a relatively short time thanks to the ability to margin trade.
Longer-term investors might prefer to choose an ETF or mutual fund to gain exposure to a pound index.
Select A Broker
Ensure that the broker offers your chosen trading instrument and operates in your area. When choosing British Pound Index brokers, it is also worth considering:
- Are they regulated by a reputable body, such as the FCA?
- Do they offer competitive rates, including low to zero commission values?
- Do they support a range of payment methods, such as PayPal or wire transfer?
- Do they offer a user-friendly trading platform that supports your preferred tools, statistics and graphs, such as TradingView?
- Do they provide a knowledgeable support team, available 24/5 or 24/7?
Sign Up
Registering with a British Pound Index broker is usually a straightforward process and will involve providing details including your email address and name. Later steps usually require more detailed personal information and will often also involve know your customer (KYC) checks, which will mean uploading documents to verify your identity and the other information you have provided.
Some brokers provide bonuses for signing up – keep your eyes open for these, as they can be a significant boost to your early pound index trades.
Place Your Trade
Locate the asset on your broker’s trading platform by using the search function or scrolling through the list of assets. The pound index will be found with other currency indices and is usually grouped within the currency category.
The top platforms will allow you to set up trading signals for the pound index, and it is often a good idea to set up alerts or other notifications for the assets you are interested in trading. These can tell you when there has been a significant price movement, when the price has reached a specified level, when the trading volume reaches a certain level, and more.
When the time comes to place a trade, set the parameters including the amount you want to stake and whether you are opening a short or long position on the British Pound Index. It is also a good idea to implement risk management tools by setting stop loss and take profit levels.
Pros Of Trading GBP Index
- Exposure to multiple currencies – from the US, Europe and Asia, the GBP Index considers a range of global currencies
- Major and emerging currencies – a basket comprised of both established and emerging currencies offers a unique point of comparison on a global stage
- Relative stability – GBP is considered one of the more stable currencies, though all currencies are subject to volatility
- Investing vehicles – investors can choose between a range of trading instruments including futures, options, CFDs, and ETFs
Cons Of Trading GBP Index
- Limited availability – the GBP index is not widely traded compared to the US Dollar index
- High Euro/USD exposure – making up over 75% of the total basket, changes to these currencies can significantly impact the value of the index, irrespective of the position of GBP at the time
Trading Hours
The trading hours may depend on your broker and on the specific pound index you are trading, but generally, British Pound Index trades will take place during London Stock Exchange trading hours – 8:00 am to 4:30 pm GMT.
Final Word On British Pound Index Trading
The GBP Index is an interesting asset worth considering by forex traders looking to diversify their portfolio. However, it is not widely traded, which may mean that the number of trading vehicles, brokers and exchanges is more limited versus other popular assets. Also ensure you are up to date with the latest political and economic news and events.
Use our list of the top British Pound Index brokers to get started.
FAQs
What Is The British Pound Index?
The British Pound Index tracks a basket of currencies made up of some of the most traded and liquid currencies. It offers a relative evaluation of the strength of the British currency, plus a reflection of major political and economic events, amongst other factors.
What Influences The Value Of The GBP Index?
Economic factors such as price and inflation can have a big effect on the strength of the GBP. Countries that have high inflation generally see the value of their currency depreciate relative to others.
What Is The Ticker Symbol For The GBP Index?
The ticker symbol may vary somewhat between exchanges, depending on its composition. BXY and ERI are among the most popular ticker symbols.
How Do I Invest In The GBP Index?
First, you will need to find a broker or exchange that offers the British Pound Index as a tradeable asset. Given that GBP is a widely traded currency, there are a number of options around. Use our list of the top British Pound Index brokers to find a suitable provider.
Is The GBP Index Getting Stronger Or Weaker?
The OECF forecast that the UK economy would shrink over 2023. In contrast, the US is forecast to grow. However, there are many factors that may affect this including war, politics and economic policy.