Traders are increasingly shorting the pound, betting that it will decline against other currencies. But what does this mean? And is it a good idea?
Who made money from shorting the pound?
Shorting a currency involves selling the pair against which you are betting. For example, if you’re trading GBP/USD and think that the Pound will decrease in value against the USD, you’ll profit if the price quote for the pair drops lower than the spread. However, if the price quote rises higher than the spread, you’ll make a loss.
In order to trade Forex, you need a broker. Some brokers offer commission-free trading for all major pairs, including the Pound. Alternatively, you can open an account with a company that offers CFDs, which allow you to trade on leveraged markets. However, it’s vital to understand the risks and rewards of these trading products before you decide to invest.
According to More Money Than God, a 1992 book by Sebastian Mallaby, George Soros shorted the pound during a “prestigious gathering” in Basel on September 8. This was right after the Bundesbank’s President Helmut Schlesinger spoke about inflation pressures on the German Mark and urged his own central bank to raise rates. When the Chancellor of the Exchequer Kwasi Kwarteng announced a mini-budget in response on September 23, Soros sped up his shorting of the pound, triggering its devaluation.