How do you know that the pound has fallen to a 34-year low against the dollar, giving professional investors another chance to profit from betting against it. But can ordinary investors do the same? It’s possible, but it is a high-risk strategy. Read on for Telegraph Money’s guide to how do you short the pound.
The key to success in currency trading is careful analysis and robust risk management. The value of a currency can change dramatically based on a wide range of factors, from interest rates to political instability. Understanding how these changes can impact a currency’s value is the first step to becoming successful at shorting currency pairs like GBP/USD. The second is to make sure you understand how spread bets and CFDs work. These are the easiest ways for individual investors to short a financial asset, like the pound, without owning it outright.
Unlocking Opportunities: A Guide to Shorting the British Pound
The way they work is that you essentially sell the pound to your broker, and then rebuy it at a price lower than you sold it for. If your prediction is correct and the pound falls, you’ll make a profit. However, if the pound rises, you’ll lose money. That’s why it’s important to use a stop loss and take profit orders wisely. Hedge funds are especially adept at this game, because they have the money and sophisticated models to scale their positions much larger than individual traders can. They also often have access to market insights and analytics that individual investors do not have.