Every one of us knows at least one very rich and successful investor known mainly for their stock picks. For many, the first name that comes to mind is Warren Buffett, currently the third richest person in the world right now. He is known for having massive stock holdings in companies such as Apple and CocaCola, holding the latter for decades. Besides the amount of wealth Buffett has accumulated over the years through his investments, he is also well known for his work in philanthropy and leading a very simple life. All these and other factors make Buffett perhaps the most well-known investor, but inasmuch as he is quite impressive, he’s not the person that comes to mind when I imagine the best traders of all time. My personal favourite is Jesse Livermore, the Great Bear of Wall Street because of his trading style. He combined both fundamental and technical analysis to come up with incredible calls in the market, and his style is still copied to this day. In fundamental analysis, he believed that people acted on fear, ignorance, hope and greed - all recipes for disaster, while also relying on technical analysis because he believed patterns recur in the markets over and over.
However, we’re not here today to talk about these stock traders and investors, but rather about the best Forex traders who made it big and became millionaires. Although stories abound about the great stock traders throughout history, a couple of Forex traders have become wildly successful as well. These will be who we shall focus on in this post, looking at some of their greatest moments and trades, then trying to see what lessons we can learn from them. Because there are so many of them, we shall only focus on the top 5 for now based on their trading history and the profits they made. (Find out: Why Professional Traders Prefer Trading Stocks Rather Than Forex)
One cannot talk about successful Forex traders, or even traders in general for that matter, without mentioning George Soros. Today he is known as ‘The Man Who Broke the BoE’ after earning $1 billion from a single trade in 1992, but the man’s history goes back several decades before that. After studying philosophy in the London School of Economics, he got his first job in finance as a clerk at a bank, from where he built his name and fortune. He then moved to New York to become an arbitrage trader and later started his own firm with $100,000 of his own money. Further savings and success in the markets led to him forming the Double Eagle hedge fund that handled $4 million in capital including his own money. Double Eagle would eventually become Quantum Fund and come to manage billons under the direction of Soros Fund Management.
By 2011, Soros Fund Management had one of the largest value of assets under management (AUM) in the world at about $30 billion and almost as much in profits since it was founded. From 2011, though, the hedge fund would be turned into a family business following the implementation of the Dodd-Frank Act that required financial institutions to report their trades and activities to the SEC. Funds from outside investors were consequently liquidated and returned to the investors, and now the fund only holds the wealth from the Soros family. Nevertheless, the fund still regularly outperforms other hedge funds thanks to George Soros himself and his knowledge of the markets. (Legalization of Forex Trading in the US: Facts and Trends)
The most memorable moment of George Soros’ trading career was in 1992 when he made that short sale of the GBP to earn him his title. After joining the EURpean Union, the UK agreed to enter the EURpean Exchange Rate Mechanism (ERM) as a transition into a single currency, EUR. The ERM prevented the GBP from deviating more than 6% from the EUR, but the timing was wrong. Differences in inflation and interest rates between the UK and Germany and other EURpean nations put a lot of pressure on the UK administration to intervene and keep the GBP within the 6% stipulation. High inflation in the UK despite high interest rates forced the administration to prop up the value of the GBP, but George Soros and his fund were selling off more currency than the administration could buy from the open market. In the end, the UK decided to exit the ERM causing the GBP to crash and earn Soros a massive £1 billion profit and costing the administration £3.4 billion. (Know more about: New Forex Brokers Regulations in Russia in 2019)
To this day, no other trader has made as much in a single trade in the Forex market, so Soros will probably go down in history as the person who made the most in a single trade. However, it is important to also look at how the man got to that position. Ever since his early days as an arbitrage trader, Soros had been perfecting a theory of reflexivity to write as his thesis. He claims that individuals enter markets driven by their biases, creating a disequilibrium contrary to what economic theories dictate. This is similar to what Jesse Livermore said about the markets when he said people are driven by greed, fear, hope and ignorance. This theory was used to explain the causes of the 2008 housing bubble that eventually led to the 2009 economic crisis. (Looking at the: Growth Of The Forex Market In Africa And Other Developing Countries)
Considering how successful Soros has been in the past and that he continues to grow his fortune, we can say that his is not a case of luck but careful analysis of the markets. In the case of the 1992 short of the GBP, Soros and other traders noted that the BoE could not keep up with the ERM, and they kept shorting the currency to increase the pressure. Eventually he was proven right thanks to the careful fundamental analysis and understanding of the markets. At that time, he had committed the entire fund’s capital to this single trade, so it really took a lot of guts to make the trade. What we can learn from Soros is that it takes time to perfect a trading strategy, and that we all need to be patient. In the end, this persistence and resilience leads to superb profits of a lifetime, as we see the hedge fund is still making money to this day; far more than most other hedge funds. (After some back and forth: ESMA Finally Puts Its Foot Down On MiFID II Regulations)
One cannot talk about George Soros without mentioning Stanley Druckenmiller too since the two cooperated in the 1992 short of the GBP. Stanley’s history may not be as wild as Soros’, but it is also quite remarkable as he has become one of the most successful traders of all time. After completing his BA in English and economics, he was pursuing a Ph.D. program when he dropped out to become an oil analyst at a bank in Pittsburgh in 1977. He must have been successful because he was soon named head of Dreyfus Fund in 1986. It didn’t take long before Soros noticed his talent and hired Stanley to work on his Quantum Fund in 1988. It was here that Druckenmiller would become really famous.
It has been claimed that it was he who first noted that the UK Treasury did not have enough foreign currency reserves to buy GBPs from the open market. Armed with this insight, he convinced Soros to fund a huge short of the currency, leading to the huge profits the fund made in 1992. But this success would not last forever, because Quantum would suffer massive losses during the Dot-Com bubble. In 1999, the Soros Fund reported that their capital had decreased from $22 billion to $13 billion because of making some wrong calls and investors pulling their money out of the fund. Druckenmiller had assumed that tech stocks like Amazon and Yahoo! Would drop in value, but their share prices rose leading to the losses and panic by investors. Druckenmiller consequently left the fund in 2000 to focus on his own, Duquesne Capital. His own firm performed marvellously for a decade, bringing in an annual return of 30% every year without losing in any year. Indeed, even during the 2008 financial crisis, it is reported that Stanley still added a whopping $250 million to his fortune. (Trading Stocks in Forex Brokers: Commissions, Swaps, Spreads Research)
Druckenmiller’s Forex trading career is a story of ups and downs - teaching us to not to expect to make profits all the time and knowing when to take a break. When the guy made some bad calls, he was not too proud to admit that he made a mistake, but he refused to stay down. Then in 2010 he announced that he was going to retire because he could not keep up with the expectations people had of him making huge returns year after year. He is still an active trader in the Forex market, but now he does the investing for himself without the pressure from investors. Perhaps account managers running PAMM accounts can learn a thing or two from this legend. (These are: The Best Forex Events And Expos To Attend Every Year)
Unlike the previous two who have deviated from Forex trading in their later years, Bill has always been a Forex trader, and he has done very well for himself. Initially, he studied architectural design at Cornell University, little did he know he would be spending time in front of the computer studying Forex charts instead. His trading career began while still studying in university when he inherited $12,000 after his grandmother died. The money came in form of a basket of over 100 stocks like Warren Buffett advises amateur traders. Anyway, he liquidated all the stocks and decided to create his own portfolio. To do so he had to spend a lot of time in the library studying various trading strategies and tips. This extensive research and knowledge made him very successful in the markets, turning his $12,000 inheritance into a $250,000 fortune… while he was still studying architecture. (Investor Tips 2019: What To Include In Your Portfolio)
The trading bug must have got into him because he interned for Salomon Brothers and ignoring his design career. He was recruited into Salomon Brothers in 1982 through a training program when the firm was looking to hire traders for the newly formed Forex trading desk. Lipschutz gladly became part of the team, and he would later beat many other traders. By 1985, he was considered to be among the top 5 Forex traders globally, churning about a $300 million profit for Salomon Brothers a year. His success would land earn him various titles and positions in Philadelphia, including the development of the options market in the city. At some point, he had a 16-month positive record of making profits, and accounting for more than a half of the options trading volume on the Philadelphia Stock Exchange. (If you’re going to start trading: Think Twice When Making A Deposit In A Forex Company)
He would retire in 1990 while still at the top of his game from Salomon Brothers, but the trading bug was still in him. So, he created Hathersage Capital with some friends from Cornell University. The fund specialized in Forex trading and although we don’t know the exact amount of assets they have under management, it is one of the best performing macro hedge funds in the world. He was also inducted into the Trader Monthly Hall of Fame since 2006 for his success in the Forex market, and has also been featured in various investment books.
Bill’s career in Forex trading can teach us various things, starting with risk management. After turning $12,000 into a quarter million, Bill subsequently lost all of it in a single trade probably because he did not observe the principles of risk management. This teaches us not to become overconfident in our success and take extra risks, but to instead stick to the trading plan that led us into success in the first place. The same experience also motivates every one of us to take heart in moments of failure and not to give up because it is possible to get back on your feet. (Revealing Forex Bonuses Of Brokers: How To Identify A Real Bonus)
Because of his success, Bill has also been featured in several books and interviews, and on these he talks about some of the important factors for every trader. One of the lessons he repeats often is not to ignore market sentiment. Sometimes a person can become overconfident in their analysis of the markets that they forget that they aren’t alone in the market. In so doing, they miss some crucial market moves that traders had been anticipating based on the Forex calendar. Therefore, Lipschutz encourages traders to always be aware of upcoming events in the markets and to consider their impact. Every detail counts when trading the markets, and they all have to be considered. (Save your money by knowing: How Not To Be Added To The 95% Of Losing Traders)
Bruce is the typical adventurer who also fell into the field of Forex trading but still managed to thrive in it. After completing his studies in Harvard College, he took up various activities to pay the bills and one of them was writing. After experiencing a writer’s block, he became a cab driver, and it was while doing this that he discovered the world of trading. He took out a loan of $3,000 from his credit card to buy copper and interest rate futures, earning him $1,000. That wasn’t bad, but it was his third trade that would make him the legend he is today. Using the $4,000 capital he had, he bought soybeans and held the position for six weeks, turning the investment into $45,000. He explained to New Investment Superstars that, following this, he got cocky and discarded a hedge he had placed to limit the losses. Not long thereafter did the value of soybeans begin to drop, leaving him only with a $22,000 capital. This wasn’t a completely terrible outcome, but he said he felt sick because he knew he had lost $23,000. That was the first lesson he got in risk management, and he often advises traders to use stop-loss orders and not to risk more than 1% to 2% of their capital on a single trade. (Forex Rigging And Manipulation: How The Major Investors Pull It Off)
He then joined Commodities Corporation where he would make a name for himself and become a better trader. While working in the firm, he was under the tutorage of Michael Marcus who is also a renowned commodities trader. Marcus taught Kovner one very important thing – that it was possible to make millions if only you applied yourself and put in the hard work. Another lesson he got from Marcus was that you need to be willing to make mistakes and not take them personally because, otherwise, you would be reacting from emotions and not objectively. And finally, from Marcus he learned never to ignore other forms of analysing the markets. he was quoted as saying technical analysis without understanding the fundamentals is like a doctor diagnosing a patient without taking the temperature. No form of analysis works independently, but they need to complement each other. (Are you asking yourself: Should You Invest In CFDs Or Stocks To Make More Money?)
With these lessons, Kovner formed Caxton Associates in 1983, and it was so successful that they had to stop accepting funds from new investors from 1992 – less than a decade after launching. They kept accepting new funds from time to time, but started taking in new money as from 2013 and now the firm has $3.9 billion in AUM. They were among the few firms who allowed their clients to withdraw funds during the 2008 financial crisis, but they still managed to make 13% returns in the year. Kovner would retire from trading that year, but he still walked away with a handsome fortune of $5.2 billion according to Forbes this year. (Concepts Every Trader Should Understand: Leverage, Margin And Hedging)
Krieger will forever be remembered as the trader whose short exceeded the total amount of New Zealand dollars in supply at the time – 1987. He studied Sanskrit and Philosophy in Wharton School of Business before joining Salomon Brothers where he worked with Bill Lipschutz for about four years. Perhaps he wasn’t comfortable there, or didn’t receive the recognition he sought, so he left Salomon for Bankers Trust. Here, they recognized his talent in trading and gave him a $700 million capital to work with instead of the typical $50 million. he would use this money to make one of the best trades in history.
Black Monday occurred on the 19th of October 1987 due to a screw-up with trading algorithms. Investors naturally dumped their US dollar holdings in favour of a safe haven, and Krieger saw that the New Zealand dollar was overvalued. Using his large capital and a high leverage, he shorted the currency and sure enough it decreased in value by 3% to 5%. The trade made $300 million for the company, and the company now held more NZD that was actually available in the market. So much so that it is said the New Zealand government called Bankers Trust to threaten them to close the position. Krieger would later on leave Bankers Trust to work with George Soros, but his awesome trade will always be remembered.
You now know the top 5 Forex traders, how about watching a video that shows even more incredible stories of success in Forex: