In the simplest terms, short the pound meaning (or selling) is betting on an asset to decrease in value. This can be done with stocks, commodities, and even currencies. In the case of the pound, it means betting on the currency pair GBP/USD to decline in value.
Professional investors were reportedly making huge profits this morning as the pound plummeted to near parity with the dollar after a warning from former Bank of England policymaker Danny Blanchflower that Prime Minister Liz Truss’s economic plan is heading for ‘gagaland’. Ordinary investors can profit from betting against the pound too, though it’s a high-risk strategy.
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If you want to short the pound, you’ll need to have an online forex account with a broker. You can also trade it through ETFs (exchange-traded funds) that track the pound.
Traders make money when they short an asset by borrowing it at one price and then selling it at a lower price. They then repurchase the asset at the higher price and gain the difference.
Hedge funds excel at this type of speculation. Their deep pockets and sophisticated models enable them to take positions that individual traders cannot. They also have insights into market volatility and economic indicators that individuals do not. For example, they may have access to private conversations with market players that are not publicly available. This allows them to anticipate how a trade will unfold before it happens. This is how Druckenmiller and Soros made billions on the pound’s devaluation.