The Cable dates back to the 1800’s, when all communication between the United States of America and Great Britain was done via an underlying cable across the Atlantic 500 usd to cad Ocean. This also was the method of transferring exchange rates in currency on the forex market in the early years of forex trading.
Although things have somewhat progressed since the 1800’s, the use of live data feeds through hosts computers and the internet has taken over; the name the “Cable” has stuck with the forex traders of this decade. Often you will hear a trader say “I’m going short on the Cable today” meaning I am selling the GBP/USD.
If you are unsure how the currency pair GBP/USD works then read on: All currencies are traded one against another in this case the GBP (Great British Pound) against the USD (United States Dollar), it is the first currency in the pair that remains static, in this case £1. The second currency is the fluctuating currency to a singular of the first. For instance, to watch a live feed of the GBP/USD you might see the figures 16790 fluctuating up and down.
The figure is the value of the dollar against a single pound, in the case of the above figure $1.6790 against £1. You will also notice that there are an extra two decimal places for every currency traded, in the forex trading world these are known as pips and are what traders place their bid on.
If a forex trader where to bid $10 a pip on the cable to go long and the GBP/USD increased from 16790 to 16800 then that trader would be in profit of $100; even though the value of the cable has only increased a tenth of a cent. With fluctuations of 100’s of pips a day you can see the profit potential.
The cable is one of the most popular currencies traded but for from all that is on offer. There are the major currency pairs such as; the EURO, AUD, CHF,CAD, JPY which are all traded against the USD, there then are minor currency pairs which interchange the majors, the EUR/GBP for example. The basics of forex trading remains the same as for the explanation of the cable, however the strategy varies greatly between currencies and of course between traders.