What Does Shorting the Pound Mean?
What does shorting the pound mean? In trading,’shorting’ (selling) the pound means taking a position that would earn you a profit if the British Pound’s market price decreases in comparison with other currencies. Unlike going long (buying), when you short a pair of currencies, the first currency in the pair is called the base currency while the second one is known as the quote currency. The base currency’s value can be boosted or devalued by economic indicators such as GDP growth, inflation or interest rates.
Who made money from shorting the pound?
As the UK’s economy struggles with soaring inflation and a cost of living crisis, traders are increasingly placing short bets against the Pound. This type of trade can be profitable, but it is also important to understand what’s driving the Pound’s market performance.
Aside from political and economic factors, the GBP’s price is also influenced by its correlation with other major currencies such as the EUR and CHF. For example, the GBP is often negatively correlated with the USD and positively correlated with the AUD. Traders looking to make speculative profits may want to consider shorting the Pound in tandem with a long position on one of these currency pairs.
With a broker that offers contracts-for-difference, you can sell the Pound through your trading platform by clicking the’sell’ button after indicating how much of the currency you wish to short. You can then add a stop loss and a profit target to your order if you wish. A popular trading strategy involves maintaining a risk-to-reward ratio of 1:2, meaning you want to bet on the market to deliver twice as many profits as losses, but this requires careful evaluation of your risk tolerance and current market conditions.