How to Short The Pound

The British pound is one of the most traded currencies in the world

Want to know how to short the British pound? This article explains different ways to do just that. Knowing how to benefit from currency movements can be very profitable. The pound is one of the most traded currencies in the world. Knowing how to short the pound is a basic skill when you are investing in or trading world wide currencies. Here are some ways to short the pound:

Difficulty:

Moderately Easy

Instructions

1. When you short the pound (or any currency for that matter) you will have to short it relative to some other currency.

   For example: Pound will fall against the dollar or Yen will rise against the Pound. There are also ways to short a currency against a basket of currencies.

2. FOREX markets offer great diversity

   The traditional way of shorting currencies is trough the use of options. However, in this article I will also mention other ways to short the pound.

   OPTIONS

   Here is a brief summary on options:

   Options for currencies will normally be purchased in the FOREX market, a global market that deals only with currencies and currency contracts (options are contracts).

   Options normally have an expiration date.

   The price or relationship between your picked currencies at the expiration date will determine whether you made money or not. For our purposes, you will make money if the price the market is paying for the currency is less than the exercise price.

   The appropriate contract to purchase when shorting a currency is called a put. There are always many puts with different exercise prices, so you must choose the exercise price.

   If you have an "american-style" forex option you can exercise it at any time before its expiration!

   If you can do it, using options is one of the best ways to short the British pound.

3. ETF's

   In recent years, this new way of investing has gained popularity. ETF stands for Exchange Traded Fund, since it is also a fund, it charges a tiny commission. These are a way to invest in currencies without a FOREX account. Since ETF's rely on market movements, they are not as reliable as options.

   If the ETF fund simply tracks the index you are interested in, it should not have difficulties with regards to payment. They trade like a regular stock. ETF's that only track indexes are considered pretty reliable.

   Here are some ETF's you can use to short the British pound:

   Short this ETF (ETF options are bought in your stock brokerage account, not FOREX):

   ticker:FXB

   This ETF tracks the price of the pound in relation to the dollar.

   I might be adding other ETF's soon. For links to related articles check the resources section near the bottom of the page.