Currency Trading Strategies from the Greatest Currency Traders

There are a great many currency trading strategies that you might want to consider. The widely used currency exchange market provides great opportunities. The market is used on global scale and facilitates different parties to trade together no matter their physical location. Most of the transactions are not considerable but in some occasions the big positions could lead to significant gain or loss. The current article is intended to illustrate some of the best trades realized so far.

How it works

Understanding the essence of the forex trading and money exchange is important for following the cases below. Most of the techniques utilized are already known to the majority of stock investors and currency traders. Typically there are four options to be followed:

In case the trader believes a currency pair would reduce its value ratio this is called shortening,
The opposite scenario when a currency is expected to increase in value is called Going long,
Remaining options are covered within the previous but the important element would be the rate at which the change up/down is happening – strangle (move a lot) and straddle (be steady)
A simple scenario that illustrates the options above will be described shortly: In case a shortening of the USD is expected, a person would take a bank loan that will be covered at later stage when the currency has reduced its value. In the Forex market the transactions are very quick and instead of taking currency loans other terms are used: puts, calls, options or forwards. All of those are used to build up a portfolio and gain in the traded positions. Leveraging is the key that makes some trades worth billions.

Third greatest currency trade

Andy Krieger, at the age of 32 was working as a trader at Bankers Trust. He was concentrated at following currencies opposed to US dollars after the Black Monday crash (1987). Since most investors jumped to secure currencies that were impacting significantly less, certainly he believed some of those would be overvalued. This creates great opportunity for arbitrage. The New Zealand dollar – Kiwi was the currency Krieger picked at.

Utilizing the new techniques afforded by options, he took up a short position contrary to the NZ dollar worth several millions of dollars. At the time, his sells orders were worth more than that money in New Zealand had. The pressure generated in parallel to the fact that there was not enough circulated currency lead to sharp drop in the kiwi rates. The losses were identified to amount to 3-5% which brought millions to Kriegers employers.

Second greatest currency trade

Stanley Druckenmiller realized millions by undertaking two long bets in the same currency.

The first bet was set immediately as the Communist bloc failed at the end of 1989. The reunion of West and East Germany stressed the Deutsch mark to extreme levels. Stanley put hundreds of millions on a future rally that later was increased to 2 billion Deutsch marks. In the long term the investment was worth millions pushing increase in returns over 60%.

The second push was several years later when Druckenmiller opted for buying German bonds expecting that those would increase considering the slowed growth in economy comparable to the British one. In the same time George Soros was playing the Bank of England that brought down the price of GBP and led to increase of British exports. Both trades were completing each other and provided significant increase in Soros’s gains.

The greatest currency trade ever

In the last decade of 20th century both countries Britain and Germany were very different economically. The Germans were struggling with keeping the value of the DM after the unification despite their strong economy. In the same time the British wanted to keep the pound at about 2.7 marks. Keeping this standard required that interest rates in UK were generally high and lead to high inflation as well. Nevertheless the European Exchange Rate Mechanism (ERM) required that the ratio is kept so Britain had to follow the path.

At the time George Soros, believed the pressure over the pound would grow and the push from UK to keep the rate is an excellent opportunity. He played short positions on the pound losing value. The UK monetary fund raised the interest rates to double digits to assure investors interest thus fighting back at the pressure from buying.

The high interest rates however cost a lot of money, and the government realized that it would lose billions keeping the artificial support of the pound. UK withdrew from ERM and the value of the pound fell sharply against the mark. At least a billion was realized by Soros off this trade. The devaluation of the pound helped the exports and brought the UK economy up again.

There are examples of some current trading strategies from some of the best Forex traders that the markets have ever seen.

Leave a Reply