The ability to short the pound can provide traders with the opportunity to turn market downturns into personal financial gains. However, it is important to remain mindful of your trading position sizes and risk management when pursuing this strategy.
Traders short the pound when they believe that its value will decline in relation to other currencies. In the world of Forex trading, currencies are traded in pairs with a base currency and a quote currency. When you open a short position in GBP/USD, you’re effectively selling the base currency (GBP) and buying the quote currency (USD), which means that if the price of USD falls, you will make a profit.
Mastering the Markets: Choosing the Best CFD Trading Platform for Your Strategy
In 1992, George Soros made his name in the media after shorting $10 billion worth of pounds during the Black Wednesday UK currency crisis. He managed to earn a profit for his hedge fund, Quantum, and caused the Bank of England to withdraw the pound from the ERM as it attempted to raise interest rates.
While the allure of potential profits attracts many to Forex trading, it’s important to understand the risks involved in shorting the pound and other popular currencies such as the EUR, USD and AUD. Traders can use CFDs to short the pound and other markets with tight spreads, no commissions and access to 12,000 instruments.