What do George Soros, Stanley Druckenmiller and Andy Krieger all have in common? They slayed the forex market with a single trade, reaping hundreds of millions (and in some cases billions) of dollars. Below are their stories.
George Soros
In 1992, the billionaire investor made $1 billion from a single transaction by betting against the British pound, which had a fixed exchange rate of 2.7 against the German mark. In a day that analysts simply refer to as Black Wednesday, Soros shorted $10 billion USD worth of pounds on the assumption the Bank of England would not be able to maintain a fixed exchange rate in the face of overwhelming market forces. He was correct; the BOE eventually withdrew from the European Exchange Rate Mechanism (ERM) when it realized it could no longer sustain the pound’s artificial value. Soros has since been referred to as “The Man Who Broke the Bank of England.”
Stanley Druckenmiller
Not surprisingly, another one of the best forex trades of all time involves an employee at Soros Fund Management. Stanley Druckenmiller was bullish on the German mark after the fall of the Berlin Wall in 1989. In spite of significant market volatility and political difficulties, Druckenmiller made a multibillion dollar bet that the mark would eventually rebound from the lows it suffered after the fall of the Wall. Under the supervision of George Soros, he was asked to increase his purchase to 2 billion marks. When it was all said and done, Druckenmiller’s long position made the firm millions of dollars.
Andy Krieger
Andy Krieger became a thing of legend in 1987 after he shorted the New Zealand dollar (a.k.a. kiwi) on his way to millions of dollars. After the Black Monday crash of 1987 created a bear market for the US dollar, savvy investors like Krieger bet that some of the greenback’s rivals had become fundamentally overvalued. Chief among them was the New Zealand dollar. Krieger recognized this was a perfect opportunity for arbitrage and bet hundreds of millions of dollars against the kiwi. Krieger’s sell orders were so big they were believed to have exceeded New Zealand’s money supply. Krieger ended up making $300 million in revenue from this single transaction. Naturally, the New Zealand government wasn’t too pleased with Krieger or his company, Bankers Trust. In 1988 Krieger would leave Bankers Trust and go work for George Soros.
What else do George Soros, Stanley Druckenmiller and Andy Krieger have in common? Aside from the Soros Fund Management connection, all three took advantage of volatility to make the biggest forex trades of all time.
What can forex traders learn from these stories? One lesson is that the forex market can be heavily influenced by outside forces. In order to possibly capitalize on such extreme market volatility, you must have an understanding of the broader financial, economic and political climate impacting your trades. Having a lot of capital to trade helps a lot, too.
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