George Soros is a very smart man who has made some very smart investments throughout his career. His most famous trade, the one that netted him a cool billion dollars, was when he bet against the British Pound. Something that everyone thought he was crazy to do.
Let’s quickly recap on http://www.georgesoros.com/ what went down so you can get a better understanding of how one man, that man being George Soros, was able to break the GBP.
The date was September 17th, 1992. While most people refer to this day as “Black Wednesday“, for George Soros it was probably one of the best days of his life. According to an article published on Valuewalk.com, the market was expecting Britain to devalue their currency.
And at the time, there was nothing that could be done to prevent this from happening. It was basically a foregone conclusion. Now the world was just waiting to see if speculators had the courage to put their money where their mouth was. If they did, this self-fulfilling prophecy would come true.
Around 7:30 PM that night, a news conference was held by Lamont. During the news conference an announcement was made and low and behold, George Soros was right. Britain was exiting the ERM and their currency was floating on the market.
What happened next is something that you usually only hear about in the movies. Once Great Britain decided to float its currency on the market, the pound immediately fell 25% versus the US Dollar. It also fell 15% versus the Deutschmark.
Soros’ fund, then referred to as the Quantum Fund, had borrowed billions of dollars to make this one trade. And though it was risky, George Soros was able to secure the funds he needed to make the trade. In all the fund bet $15 billion that the value of the pound would fall versus other currencies.
Boy was Soros right. As soon as the pound floated the value of his fund increased by $4 billion dollars. It went from $15 billion to $19 billion in a matter of seconds. A few months later the fund was worth close to $22 billion. Read more at http://topics.wsj.com/person/S/george-soros/209
Being that this was a hedge fund, Soros and his partners made at least 20% of the upside which was $7 billion. They basically each made just under $1.5 billion dollars. And that my friends is how one man broke the GBP and made over a billion in one day.