The author is an expert in the field of multi-asset trading.
The Biggest Forex Trades Ever Made
The Forex market is big, it’s very big, and every little currency fluctuation can provide an opportunity for big trades and big payoffs. We know that with leverage you can make some pretty big trades even with small capital, but these traders have gone above and beyond, risking a fortune to make a fortune. While many traders play it safe and go with the flow (while still making profits), some have bet against the market, and won! Here are some of the biggest forex trades ever made.
George Soros and the British Pound
No list involving big trades is ever complete without George Soros – one of the world’s most prolific investors and the ultimate trader. In fact, many of the most successful traders are connected to him and his famous Quantum Fund (as with Stanley Druckenmiller below). Among many other huge trades, his most famous bet against the British pound in the early 1990s earned him the nickname of “The Man Who Broke the Bank of England,” but how did it happen?
Soros had cleverly (and correctly) recognized the UK’s unfavorable position in the European Exchange Rate Mechanism at a time when the UK had been trying hard to artificially prop up the pound against the German Mark, and began accumulating a huge short position on borrowed money to bet on the pound’s drop. Attempts to keep up the value of the pound as per its ERM conditions left Britain with high interest rates and very high inflation - conditions that could not last long.
Ultimately the pound’s fixed exchange rates could no longer fight market forces, as Soros speculated, and the UK government faced potential losses of billions if it continued propping up the pound. The result was that the UK withdrew from the ERM and the pound plummeted against the mark, netting Soros a cool $1 billion in profit off of a $10 billion position. While the UK treasury lost a lot of money on that fateful day in 1992, the incident set the stage for a stronger economic recovery.
Stanley Druckenmiller and the German Mark
Stanley Druckenmiller made not only a name for himself but a fortune for Soros’ Quantum Fund when he bet twice on the German Mark in the currency’s turbulent years. The first time came when the German mark had been overly devalued by the market following German reunification and its perceived challenges. Druckenmiller envisioned a stronger rise in the currency and put in a long position of up to two billion marks, which came to be worth millions as the mark rose as expected.
The second time came as Druckenmiller’s boss Soros was betting heavily against the British pound, which Druckenmiller himself had originally identified weaknesses in. Confident in the pair’s prediction, Druckenmiller had again gone long on the mark on the assumption that the pound would drop against it. This complimentary trade added considerable profits to the fund’s main pound bet. Read more about Druckenmiller’s story and other successes.
Andrew Krieger and the New Zealand Dollar
Perhaps the least widely known name in this list, Andy Krieger made one of the biggest single forex trades ever when he aggressively targeted the kiwi in 1987. As just a 32 years old currency trader at Bankers Trust, Krieger carefully analyzed currencies following the infamous Black Monday crash, looking for currencies that were overvalued and spotting an opportunity for arbitrage.
Krieger had taken up a short position against New Zealand’s currency worth hundreds of millions. By some legendary accounts his sell orders exceeded the entire money supply of New Zealand at the time. The immense selling pressure and the absence of currency in circulation forced a sharp drop in the NZ dollar, earning Krieger’s company millions in the process. Perhaps not surprisingly, Krieger later went to work for Mr. Soros himself.
What do the Big Forex Trades Teach us?
What all these stories have in common are shrewd investors diligently analyzing the market and identifying weak spots such as overvalued currencies and bubbles. And ultimately, the markets and economies were better off once these investors brought equilibrium (and made money in the process) by removing pricing inefficiencies from the market. There is no luck or guessing, every trade, big or small, is a result of hard work, skill and confident determination.