The pound’s market price fluctuates by the minute – and it’s not uncommon for traders to make large profits from speculating on its decline. One of the best examples was George Soros in the early 1990s when he shorted the pound ahead of its exit from the European Exchange Rate Mechanism (ERM) – a day now known as Black Wednesday. How to short a currency in the UK.
He believed that the pound was being artificially propped up by government Treasury buying, and that once these buying stopped it would break lower. That’s what happened, and Soros made over $1 billion from the trade.
How to Short a Currency in the UK: A Step-by-Step Guide
When you short a currency, you’re essentially betting that the currency will decrease in value against the dollar. You do this by speculating on the future direction of a pair by looking at the historical price action and examining leading indicators that may affect the future path of interest rates.
The most common way for retail traders to short a currency is through CFDs, which are based on the price movements of the underlying instrument. However, you can also use a spread bet or option to go short a currency. However, remember that trading derivatives means that you don’t actually own the underlying instrument, and that you can be exposed to more than your original investment. This is why it’s important to consider your risk level carefully before entering any trades. XTB is an FCA regulated broker in the UK and has Financial Services Compensation Scheme protection, meaning you’ll get back up to PS85,000 if your account loses money.