George Soros and the Perfect Speculation

George Soros and the Perfect Speculation

On September 16, 1992, George Soros made over 1 billion dollars in profit in a single day…

It was a legendary trade that would go down in financial history… not unlike the day Nathan Rothschild made a fortune speculating on the Battle of Waterloo in 1815.

Soros did this by making a massive bet against the British pound. At the time, the pound was tied to the German currency through a fixed exchange rate known as the European Exchange Rate Mechanism (ERM). It was a precursor to the euro currency.

With the ERM, exchange rates between participating European currencies were not set by supply and demand. Instead, governments bought or sold their respective currencies to keep them within acceptable limits.

By 1991, it was clear to everyone that the pound was overvalued at its fixed rate within the ERM. The Bank of England’s ongoing intervention was the only thing propping it up.

Despite that, the market believed the Bank of England could continue the charade indefinitely.

Soros saw things differently. If he could break the Bank of England’s will, it would force them to abandon the pound’s fixed exchange rate… and Soros would make an enormous profit.

Soros planned to do this by shorting the pound. In other words, he’d bet that the pound would weaken.

It was a chance to make the trade of the century.

This is how it worked…

Soros borrowed as many pounds as he could. Then he sold those pounds to the Bank of England for German deutsche marks at the fixed rate.

If the pound weakened, he could convert his deutsche marks back into pounds at a much more favorable rate, cover the amount he had borrowed, and pocket the huge difference.

At the same time, his downside was limited because the pound was obviously overvalued. The Bank of England’s willingness to intervene was the only thing holding it up. There was very little chance the pound would strengthen on its own.

It was a low-risk, high-reward play. In many ways it was the perfect speculation.

(Acknowledging Soros’s skill as a speculator is in no way an endorsement of his toxic political views.)

On the morning of September 15, 1992, Soros’s hedge fund began to massively short the pound…

By the end of the day, the Bank of England had already bought over 600 million pounds in a fruitless effort to defend the currency. But Soros was selling pounds faster than the Bank of England could buy them.

By the next morning, the British government was in a total panic. It raised interest rates from 10% to 12%, hoping to cauterize the wound.

But Soros—smelling desperation—continued selling pounds and pressuring the fixed exchange rate.

Other hedge funds caught wind of what was happening. They started to short the pound, too. It was a financial feeding frenzy, like a pack of hyenas devouring a fallen antelope.

By 7 p.m. that evening, the pressure was too much for the Brits. The government announced that the UK was leaving the ERM and abandoning the fixed exchange rate.

The pound collapsed.

Soros had shattered the UK’s monetary policy. And made over a billion dollars in profit in a single day.

I’m telling you this story because we are fast approaching another opportunity to be on the right side of history… and to profit from the collapse of another major currency.

New York Times best-selling author Doug Casey and I just released an urgent video with all the details. Click here to watch it now.

Nick Giambruno

Nick is Doug Casey’s globetrotting companion and is the Senior Editor of Casey Research’s International Man. He writes about economics, offshore banking, second passports, value investing in crisis markets, geopolitics, and surviving a financial collapse, among other topics. He is a CFA charterholder. In short, Nick’s work helps people make the most of their personal freedom and financial opportunity around the world. To get his free video crash course, click here.

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