What does shorting the pound mean continues to plummet and trade near parity with the dollar, traders are wondering what does shorting the pound mean. A quick answer is that this is a strategy that may lead to profits if the pound falls in value relative to the dollar. But, there are a few more layers of complexity to this trading strategy than that.
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One way to short the pound is to buy the currency from your broker, sell it at its current price, and then purchase it back at a lower price. This is known as selling short and is the way that many spread-betting firms allow you to make trades on currencies, though this is only really viable if you are very confident that the currency will fall in value.
Another way to short the pound is to use an exchange-traded fund (ETF). This is a much more efficient way to go, but it does require you to accept that other factors are also impacting the pound’s value.
Finally, you can also make a bet against the pound by using CFDs or spread bets. This is a more risky way to go, but it can also yield great returns if you are right about the pound’s decline. This kind of trade requires a strong conviction that the pound will continue to decline and is most likely to be suitable for more advanced traders. However, IG’s Chris Beauchamp warns that you must be aware of the risks involved in this type of trade.