In September 1992 Sterling plummeted to one of its lowest levels ever. This catastrophic devaluation came about because of the UK Government’s requirement to withdraw from the European Monetary Union, as the pound could not be kept above the agreed minimum levels. Hungarian businessman and investor George Soros recognised the potential profit to be made from this situation and eventually became known as ‘The Man Who Broke the Bank of England’.
Born in Budapest in 1930, George Soros moved to New York in his early twenties and soon tasted success as an arbitrage trader. Quickly establishing himself as a man with a sound investment brain, Soros eventually founded the Quantum Group of Funds, a hedge fund with a large group of private investors. It is through the Quantum Fund that Soros ‘broke’ the Bank of England.
Soros and his closest advisers boldly predicted the British pound would drop greatly in value in 1992 and so took the calculated risk of short selling more than $10 billion in pound sterling. The practice of short selling foreign exchange currency involves the borrowing of said currency in order to sell on. Once the currency price has dropped, the short seller then buys it back at a lower price in order to return it to the lender. The huge amount short sold by Soros resulted in the shrewd business magnate making profits in excess of $1 billion.
As the summer of 1992 progressed, the Bank of England attempted to stabilise the value of the pound by depleting their foreign exchange reserves to trade for sterling. The efforts were all in vain however as, on September 16th, the pound plummeted, causing the UK to withdraw from the European Monetary Union. The day came to be known as Black Wednesday and George Soros earned his nickname of The Man Who Broke the Bank of England.
If the British Government had kept a larger amount of foreign exchange reserves, Black Wednesday may never have happened. Recently, The Telegraph reported that Britain currently holds less foreign exchange reserves than the likes of Poland, Turkey and Denmark. In fact, the report reveals that, in terms of foreign reserve amounts, the UK ranks just 24th in the world. This has led to many observers noting that, if another major financial crisis were to arise, Britain would once again be vulnerable and the pound at risk.
The foreign exchange market, or forex as it is often known, is the largest trading sector in the world. The trading of currency is less likely to be open to insider dealing and instead relies on market players keeping abreast of financial developments. As such, it has become one of the most popular forms of trading with websites such as iforex.com offering advice and trading tools to would-be forex traders.
Although major profit-making deals such as those made by George Soros in 1992 require massive investment in the first place and a willingness to take substantial risk, the forex market can be a profitable and rewarding experience for all levels of investor.
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