This post
will explain the meaning of the word “Cable” in financial markets.
Reading Time: 2 minutes Financial activity: Trading Knowledge level: Beginner
Summary
What is the
“Cable”?
The origins
of the word “Cable”
Why the
“Cable” is important?
Conclusions
What is the “Cable”?
Cable is
the popular nickname for the GBP/USD currency pair!
The origins of the word “Cable”
The term
originated in the mid-19th century when transatlantic cables were laid along
the ocean floor to connect North America and Europe. Before the advent of
radio, the only means of communication across the Atlantic Ocean was to
physically connect the continents with a telegraph cable (the first truly
successful cable across the Atlantic was completed in 1866) and this permitted
the transmission of the currency prices between the London and New York City
Exchanges.
The first
GBP/USD exchange rate quotes via transatlantic cable were published in
"The Times" starting in August 1866!
Why the “Cable” is important?
The Great
British Pound (GBP) is the world’s oldest currency still in circulation and is
one of the most liquid forex markets in the world.
The British
Empire was global in scope and many international trade transactions are still
conducted in British pounds (The Commonwealth of Nations or Commonwealth (CN)
is an intergovernmental organization of 56 independent states, and almost all
of them share their past membership of the British Empire). Very often it is
then necessary to evaluate these transactions in US Dollars, especially if they
concern raw materials (commodities).
Since the
Great British Pound versus the US Dollar (GBP/USD) is one of the most traded
currency pairs, the nickname “Cable” is frequently used in financial firms,
trading rooms, posts, forex courses, etc.
Cable is strongly
positively correlated to the world’s most popular currency pair: the EUR/USD
(Euro versus US Dollar). This is the reason why there is a probability that
both markets will move in the same direction, and one of the most popular trading
strategies for using GBP/USD is to "hedge" open positions on the
EUR/USD exchange rate.
Conclusions
Every area
of daily life has its lingo and economics is no exception.
Today you
learned that the “Cable” is an informal reference to GBP/USD, one of the most positively
correlated pairs with the EUR/USD.
A sincere wish of good work to all!
Written by F. GRAMOLA (*).
(*) Member of S.I.A.T., the Italian Society of Technical Analysis (member society of I.F.T.A. – International Federation of Technical Analysts).
Warning
We merely cite our personal opinions for educational purposes only.
All trademarks are the property of their respective owners.
Investing and trading are risky. Don't invest or trade money that you cannot afford to lose.
Initial photo by Ryutaro Uozumi on Unsplash.
Post a Comment