ABC guide for GBP/JPY

The Volatility Trade If you are a trader who likes volatility and lots of it, nothing provides more action than the GBP/JPY cross. Trading this cross is akin to trading a volatile technology stock; it often moves several hundred points in a day. One of the key reasons for such wild price action is that GBP/JPY is also a very popular carry trade. With U.K. rates at 4.50% in Oct 2005 and Japan's rates at 0%, the interest rate differential was 450 basis points. A slowdown in the U.K. economy caused the Bank of England to lower rates by 25 basis points in Sept 2005, and with the market highly uncertain of whether this was a one-off move or a hint of more rate cuts to come, trading in the GBP/JPY looked set to be especially turbulent, thus providing volatility-seeking traders with plenty of opportunities.

The examples discussed here should give you a sense of the variety of trades that are possible using cross currencies in the FX market. Typically, 90% of all trading by volume in forex takes place across the four major currency pairs. However, for traders willing to step out of the crowd and explore a different path, trading in currency crosses can provide a multitude of profitable opportunities and should become a standard part of any FX trader's arsenal of ideas.