Usually, these speculators make many trades for small profits, but sometimes a big position is taken up for a huge profit or, when things go wrong, a huge loss. In this article, we'll look at some of the greatest currency trades ever made. First, it is essential to understand how money is made in the forex market. Although some of the techniques are familiar to stock investors, currency trading is a realm of investing in and of itself.
A currency trader can make one of four bets on the future value of a currency:. Once you're decided on which bet you want to place, there are many ways to take up the position. For example, if you wanted to short the Canadian dollar CAD , the simplest way would be to take out a loan in Canadian dollars that you will be able to pay back at a discount as the currency devalues assuming you're correct.
This is much too small and slow for true forex traders, so they use puts , calls , other options and forwards to build up and leverage their positions. It's the leveraging in particular that makes some trades worth millions, and even billions, of dollars. In , Andy Krieger, a year-old currency trader at Bankers Trust, was carefully watching the currencies that were rallying against the dollar following the Black Monday crash.
As investors and companies rushed out of the American dollar and into other currencies that had suffered less damage in the market crash , there were bound to be some currencies that would become fundamentally overvalued , creating a good opportunity for arbitrage.
The currency Krieger targeted was the New Zealand dollar, also known as the kiwi. Using the relatively new techniques afforded by options, Krieger took up a short position against the kiwi worth hundreds of millions of dollars. In fact, his sell orders were said to exceed the entire money supply of New Zealand.
The selling pressure combined with the lack of currency in circulation caused the kiwi to drop sharply. One part of the legend recounts a worried New Zealand government official calling up Krieger's bosses and threatening Bankers Trust to try to get Krieger out of the kiwi. Krieger later left Bankers Trust to go work for George Soros. Stanley Druckenmiller made millions by making two long bets in the same currency while working as a trader for George Soros' Quantum Fund.
Druckenmiller's first bet came when the Berlin Wall fell. The perceived difficulties of reunification between East and West Germany had depressed the German mark to a level that Druckenmiller thought extreme. He initially put a multimillion-dollar bet on a future rally , until Soros told him to increase his purchase to two billion German marks.
Things played out according to plan and the long position came to be worth millions of dollars. A few years later, while Soros was busy breaking the Bank of England , Druckenmiller was going long in the mark on the assumption that the fallout from his boss' bet would drop the British pound against the mark. Druckenmiller was confident that he and Soros were right and showed this by buying British stocks.
He believed that Britain would have to slash lending rates, thus stimulating business, and that the cheaper pound would actually mean more exports compared to European rivals. Following this same thinking, Druckenmiller bought German bonds on the expectation that investors would move to bonds as German stocks showed less growth than the British. It was a very complete trade that added considerably to the profits of Soros' main bet against the pound.
The British pound shadowed the German mark leading up to the s, even though the two countries were very different economically. Germany was the stronger country, despite lingering difficulties from reunification, but the U. Attempts to adhere to this standard left Britain with high interest rates and equally high inflation, but it demanded a fixed rate of 2.
Many speculators, George Soros chief among them, wondered how long fixed exchange rates could fight market forces, and they began to take up short positions against the pound. Soros borrowed heavily to bet more on a drop in the pound. The U. The government was hoping to alleviate the selling pressure by creating more buying pressure.
Paying out interest costs money, however, and the British government realized that it would lose billions trying to artificially prop up the pound. It withdrew from the ERM and the value of the pound plummeted against the mark. For the British government's part, the devaluation of the pound actually helped, as it forced the excess interest and inflation out of the economy, making it an ideal environment for businesses. Any discussion around the top currency trades almost always revolves around George Soros, because many of these traders have a connection to him and his Quantum Fund.
After retiring from active management of his funds to focus on philanthropy , Soros made comments that were seen as expressing regret that he made his fortune attacking currencies. It was an odd change for Soros who, like many traders, made money by removing pricing inefficiencies from the market. If there hadn't been a drop in the pound, the U. See why serious traders choose CMC. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money. Personal Institutional Group Pro. United Kingdom. Start trading. What is ethereum? What are the risks? Cryptocurrency trading examples What are cryptocurrencies?
The advance of cryptos. How do I fund my account? How do I place a trade? Do you offer a demo account? How can I switch accounts? CFD login. Personal Institutional Group. Log in. Home Learn Learn forex trading How to short sell currency. How to short sell currency Short selling currency can be a good strategy if the trader believes that the currency will fall in value.
See inside our platform. Get tight spreads, no hidden fees and access to 11, instruments. Start trading Includes free demo account. Quick link to content:. What is short selling a currency? Forex index trading. How to short forex. Choose a forex currency pair to trade. Based on your research, determine what forex currency pair to trade. You can use our news and analysis section or our trading tools and insights for some inspiration. Carry out research on your chosen forex pair. Using fundamental or technical analysis, or a blend of both, gain a deeper understanding of the currency pair you are trading.
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Going short in the forex market means. To short a currency means to sell the underlying currency in the hope that its price will go down in the future, allowing the trader to buy the. Easy. Just click on the side of the quote that says 'Sell.' After you have sold, to close the position, you would want to 'Buy,' the same amount.