Look for asymmetric risk
A good trade loses little if wrong and makes a lot if right. Compare your stop loss distance with your profit target before opening a trade; if it’s not at least 1:2, it may not be the moment
Famous Traders · Global Macro
George Soros
George Soros / The man who broke the Bank of England
A refugee from Hungary who became the world’s most famous currency speculator. Founder of the Quantum Fund, he made about $1 billion shorting the pound in 1992, and his name is also linked to the 1997 Asian financial crisis
Photo: Niccolò Caranti / Wikimedia Commons (CC BY-SA)
P/L · GBP SHORT~$1,000MProfit from shorting the pound, 16 Sep 1992
POSITION SIZE~$10,000MApproximate size of the short pound position
QUANTUM FUND38 yearsManaging outside investors’ money (1973–2011)
01
ProfileQuick facts
Full nameGeorge Soros (born György Schwartz)
NationalityHungarian-born, American citizen
Born12 Aug 1930 · Budapest
EducationLondon School of Economics, philosophy
Main marketsCurrencies, bonds, stock indices, commodities
FundSoros Fund Management · Quantum Fund
Best known forShorting the pound on Black Wednesday 1992
Key ideaThe theory of Reflexivity
02
Early lifeEarly life: from refugee to a New York trading room
Soros was born into a Jewish family in Budapest. When Nazi Germany occupied Hungary in 1944 he was just 13. The family survived by using forged papers to pass as Christians, and lived through the siege of Budapest in 1945
In 1947, aged 17, he moved to England, working part-time while studying at the London School of Economics, earning a bachelor’s degree in 1951 and a master’s in philosophy in 1954. There he studied under the philosopher Karl Popper
His first job in finance was as a clerk at Singer & Friedlander in London, before moving to New York in 1956 to trade European stock arbitrage and work as a European securities analyst in the early 1960s
PASSPORT · Life routeTap a stamp to see
Budapest · 1930–1947 Born into a Jewish family; survived the Nazi occupation in 1944 with forged papers
A turning point in his thinkingPopper’s idea that human knowledge is never complete became the foundation of how Soros saw markets all his life, and developed into the theory of Reflexivity
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Trade blotterTrade blotter: his trading path, 1969–2011
In 1963 Soros joined Arnhold and S. Bleichroeder and was given an experimental fund to run with the firm’s money. He later teamed up with Jim Rogers, who did the in-depth analysis while Soros made the trading decisions
| YEAR | EVENT | FLAG |
|---|---|---|
| 1969 | Sets up the Double Eagle fundStarting capital of about $4 million | EVENT |
| 1970 | Founds Soros Fund ManagementWith Jim Rogers as partner | EVENT |
| 1973 | Renamed the Quantum FundThe fund grew steadily through the 1970s | GAIN |
| 1980 | Jim Rogers leaves | EVENT |
| 1981 | Down about 22% for the yearInvestors withdraw heavily | LOSS |
| 1987 | Heavy losses in the Black Monday crashThe same year The Alchemy of Finance is published | LOSS |
| 1988 | Hires Stanley DruckenmillerAs lead fund manager | EVENT |
| 1992 | Shorts the pound on Black WednesdayProfit of about $1 billion | LEGEND |
| 1997 | Shorts Asian currencies early in the yearBefore the Asian financial crisis | GAIN |
| 2000 | Losses on technology stocksThe dot-com bubble bursts; Druckenmiller resigns | LOSS |
| 2011 | Becomes a family officeReturns all outside investors’ money | EVENT |
04
War room · 16.09.1992Black Wednesday: the day the pound broke
In the early 1990s Britain was in the European Exchange Rate Mechanism (ERM), which forced the pound to stay within a band against the German mark. Germany kept rates high to curb inflation after reunification, while Britain’s weak economy needed low rates. Defending the pound went against the fundamentals
Druckenmiller judged the pound overvalued and began building a short position. When he proposed a size of about $1.5 billion, Soros thought it too small and pushed him to expand it until the total position was worth about $10 billion
On 16 September 1992 the Bank of England bought pounds heavily and raised rates from 10% to 12%, then announced a further rise to 15% the same day, but the selling didn’t stop. That evening the government announced Britain was leaving the ERM. The pound later fell about 15% against the mark, and the Quantum Fund made about $1 billion
WAR ROOM · LONDONReplay the day the pound broke, step by step
TIMEMORNING
Policy rate10%
An approximate illustrative price line, not real minute-by-minute data
DEAL TICKET · SELL GBP/DEMWhy this trade was worth the risk
The pound was stuck at the bottom of its ERM band. If Britain held the line, the pound couldn’t bounce much because of the band; but if it broke out, the pound would fall hard. Try adjusting the values
Expected return
If Britain defends the pound · pound +2%
If the pound leaves the ERM · pound −15%
A simplified model for learning, excluding interest costs, fees and volatility along the way. The Quantum Fund’s real numbers differ
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05
ReflexivityTrading style and the theory of Reflexivity
Soros is a Global Macro trader: he looks at the macro economy, monetary policy and politics, then bets on the direction of currencies, interest rates and whole national markets. His thinking tool is Reflexivity: market participants’ beliefs don’t just reflect reality, they can change it
01 · Belief
- 1Find where belief drifts from reality
Look for times when the market believes more strongly than the fundamentals justify, and get in before the cycle turns
- 2Test first, then add
Open a small position to test the idea; increase size only if the market moves your way
- 3Always accept you could be wrong
Be ready to reverse your position as soon as the evidence changes
- 4Listen to your discomfort
He said back pain was a warning sign that something was wrong with his portfolio
06
LessonsLessons for Forex and gold traders
Your checklist
0/4
Position size matters as much as direction
Increase size when your conviction is high and the market confirms, but stay within the risk limit you set for your account
Follow central bank policy
Soros’s big trades started with reading whether a central bank was fighting the fundamentals
You can be wrong, just don’t be stubborn
Even Soros lost heavily in 1987 and 2000. What kept him going was cutting losses and starting again
07
Quiz5-question quiz
Question 1 / 5
In 1992, which mechanism was Britain forced to leave?
Britain announced it was leaving the ERM on the evening of 16 September 1992
Who first analysed and proposed the short pound trade?
Druckenmiller proposed the trade before Soros ordered the position to be expanded
What does the theory of Reflexivity say happens in markets?
Belief and reality affect each other, letting prices overshoot fundamentals on the way up and the way down
In which year did Soros close the Quantum Fund to outside investors?
In 2011 Soros returned outside investors’ money and turned the fund into a family office
In the trade ticket simulator, why was shorting the pound worth it even though the chance of success wasn’t high?
The pound was stuck at the bottom of its band, so it could only bounce a little, but if it broke out it would fall hard. The risk was asymmetric
0/5
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Trade like SorosFollow in Soros’s footsteps: where to start
Lessons from the world’s great traders are most useful once you put them into practice. These tools on 1TRADER help you think and trade with a macro view starting today
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09
Further readingFurther reading
- The Alchemy of FinanceGeorge Soros · 1987The theory of Reflexivity with a real trading diary
- The Crisis of Global CapitalismGeorge Soros · 1998His view of the Asian financial crisis
- Soros: The Life and Times of a Messianic BillionaireMichael T. Kaufman · 2002A detailed biography
- The New Market WizardsJack Schwager · 1992Interviews with Stanley Druckenmiller and other great traders
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FAQFrequently asked questions
How much did George Soros make from the pound?
About $1 billion from shorting the pound on 16 September 1992, when Britain had to leave the ERM. Some sources estimate the total profit from related trades was higher
Did Soros cause the 1997 Asian financial crisis?
The Quantum Fund was one of the funds that shorted Asian currencies in 1997, but most economists see the main causes as currency pegs, high short-term foreign debt and domestic asset bubbles
What is the theory of Reflexivity?
The idea that market participants’ beliefs feed back and change the real fundamentals, and the changed fundamentals feed back into beliefs, creating a cycle that pushes prices beyond reality
Is the Quantum Fund still open?
In 2011 Soros returned outside investors’ money and turned the fund into a family office, so it no longer accepts outside money
Educational content, not investment advice. Figures come from published books and reports and may differ between sources. Charts and exchange rates on this page are approximate, for illustration · risk disclosure · Forex glossary