Confused about the long/short forward contracts.
UK investor has a US liability. To hedge in x months, I know that you have to buy USD and sell pounds. What I’m confused about is do you go long or short on a forward contract with respect to £/ or /** £.**
You’re long a GBP/USD contract, or short a USD/GBP contract.
Long/short refers to the base currency. If you think of the base currency as a commodity (which it is), it should be clear.
You long/short the base currency.
In this case you want to buy USD forward, so you long the GBP/USD contract, or short the USD/GBP.
^ Beat me to it