What is Cable in Forex?
The exchange rate of the British pound sterling (GBP) and the US dollar (USD) is referred to as "cable" in colloquial language. The term is commonly used by Forex traders. Alternatively, the term can refer to the pound sterling in the United Kingdom. The term "cable" refers to the initial telegram connections which were used to send exchange quotes as well as other information between New York And London.
What Does Cable Mean in Forex?
Cable is a colloquial word for the rate of exchange between the sterling pound and the US dollar used by Forex dealers. The word was coined in the mid-nineteenth century when an undersea telegraph cable started to transfer the rate of exchange of the US dollar and the British pound over the Atlantic Ocean. Since then, the word cable has been used to describe the exchange rate between these two currencies.
Definition of Cable in Forex
The exchange rate between the US dollar and the British pound sterling is referred to as "cable" in Forex slang. The official exchange rate between the United States dollar (USD) and the British pound sterling (GBP) is GBP/USD. The name "cable" stems from the days of the telegraph. Back then, the sterling pound and the US dollar had been the most widely traded currency pairs. After the yen, euro, and dollar, the GBP is the world's 4th largest reserve currency in 2020. Since the aftermath Of World war I, the GBP began to lose momentum to the USD as the principal international currency.
How is the Cable in Forex Used?
The term "cable" solely relates to the British pound's trading against the dollar, which is usually expressed as GBP/USD. GBP stands for Great Britain pound and is also the currency code for the sterling pound. "Cable is going up," or "Cable is already moving lower" - you could hear a Forex trader say these things. The British pound is denoted by the sign £. The base currency is the one used to compare other currencies in Forex. A price quote stated the amount of currency X that was required to be traded for the sterling pound at the time when the pound was the world's leading currency and also the base currency for trading.
History of the Cable
The history of the word cable goes back to the times when the pound sterling was the leading currency in the world. By leading currency, I mean that currency that most nations used to hold as the reserve currency.
The history of British colonialism is complex, long, and brutal. To cut it short, the pound sterling was at one point legal tender in all the 6 inhabited continents. That was the peak of the British Colonial Empire. However, as things often turn out, the British were forced to leave country after country as protests erupted. Among the earliest nations that got freedom from the British were the Americans, who were themselves settlers from Britain and other European countries.
After the first world war, Britain started to lose the global dominance it held at the time. Around the same time, the United States started to emerge as the next global superpower. From there, the GBP started to fade away as the most important currency, and the USD took its place. Nonetheless, the GBP is still a powerful currency.
The term cable comes from telegraph lines laid across the Atlantic to communicate between London and New York. From there, the modern Forex connotation of cable came into being.
Changes in the Cable in Forex
If the exchange rate is increasing when tracking the GBP/USD, it suggests the GBP is outperforming the USD, or the USD is not performing at par with the GBP. This is due to the fact that it is costing increasingly more USD to purchase one GBP. When the GBP/USD rate falls, it indicates that it costs fewer dollars to buy one sterling pound, and the GBP loses value in relation to the USD.
FAQs
Why is GBP/USD called cable?
The term comes from the telegraph cables that were used to communicate the exchange rates in the early 20th century.
How do you trade cable?
You can trade cable through any legal Forex market.
What is the best time to trade GBP/USD?
It depends on the live exchange rate of the currency pair and when you can make the most profits.