Lots of chat in the UK press today about bankers ‘shorting’ GBP last Wednesday/Thursday based on a leak of the mini-budget, and earning fortunes as a result. How does one ‘short’ a currency?
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the same way one shorts stocks or other investments.
you find someone willing to do the following deal with you:
at point X in the future I will pay amount Y EUR/USD for a specific amount pounds.
usually that “amount y” is the current exchange rate, so basically you bet that on that day you can buy that currency for less than you could do now while the other side hopes the value of the currency goes up.
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