The morning of October the 19th, 1987 might have seemed just like any other Monday Morning. It was a chilly day in New York as traders headed to the NYSE, but little did the traders on the Stock Exchange floor know that things were about to change dramatically.
Unexpectedly, The Global Financial Markets crashed like never before. Shock, panic filled the floor throughout the day and The Dow Jones suffered a 22.6% loss, the worst single-day drop it has ever seen! on a day that would forever go down in the history books as “Black Monday”.
Many people heard of this black Monday and historic drop.
Without a single significant identifiable cause for the crash, it’s thought that the huge moves were as a result of panic in the markets. However, not everyone was panicking in the markets. Where one trader sees failure others see an opportunity!
One trader in particular who achieved legendary status thanks to these dramatic events was Paul Tudor Jones. Famously predicted a crash that was imminent and expected net a profit of $100 Million. An incredible trade. This extremely successful trade threw Tudor-Jones into the spot light of the trading world and made him part of trading history. He then became a trader that many people aspire to be, but there was a trader that netted an even greater profit than P. T Jones whopping $100 Million.
There are many lesser-known traders who achieved impressive profits and success, while the rest of the market was in a sea of red. One of these traders was Andrew Krieger (the man in the banner), a trader from Bankers Trust, a New York-based bank that would later become part of the German Investment Bank called Deutsche Bank.
Krieger’s success around the time of Black Monday led to Bankers Trust making an insane profit of $300 Million on Krieger’s trades. Black Monday was not so dull for Krieger and his team. It was this kind of bold and fearless trading activity in the financial markets that gave him the title of “The most aggressive trader in history”. On this occasion, it was thanks to his trading of the New Zealand Dollar (NZD) or also known as The Kiwi Dollar.
The New Zealand dollar, was still relatively a new and untested currency at that time. It had only been introduced in 1985, which was only two years before Black Monday.
Since September 1986 The Kiwi had been rallying against the US Dollar. This rally started to be gaining momentum in mid-1987, sending The Kiwi Dollar up 40% trading at around 112NZD for 1USD from its lows in September 1986 to its peak on the 8th of October 1987.
Krieger identified that The Kiwi had become overvalued and saw this as his opportunity. Typically, an institutional trader in the 1980s would invest $20 Million to $25 Million per trade. But, Krieger was known to invest up to $250 Million, 10 times the amount of average traders! And that’s not all…
1 - Have Sufficient Funding
Following his success at the bank up until that point he became an amazing trader and often they would turn a blind eye to his position sizes, during this time he gained the reputation as one of the most dominant and aggressive currency traders in the world, his capital limit was increased way above the average trade to a staggering $700 Million.
Krieger was determined on using this massive nearly 1 Billion amount to short The Kiwi. In fact, he took it a step further and applied leverage of up to 400 to 1. Meaning his full position size in the market was in fact a jaw dropping $280 Billion. Thanks to the use of derivatives, it’s said that his enormous short positions were actually even larger than the entire amount of money supply of New Zealand meaning he was shorting the currency pair with more money than actually existed in terms of New Zealand Dollars.
2 - Study before you execute & be confident in your analysis
It’s no surprise at all that the currency began to collapse and fall from 112 to around 99. For those trying to figure out how many pips that was the answer is 1,300 pips.
They quickly noticed that someone was taking large positions against the New Zealand Dollar and thought they were attempting to collapse the currency, so without having to further expand it was a huge trade.
The Kiwi Dollar fell rapidly and then yo-yoed back between a 3 to 5% loss, at which point he decided to exit the trade and secure a history-making profit of $300 Million. One of the greatest single financial trades in history.
3 - Let your profits run (Avoid taking profits too early)
John Key, who later became New Zealand’s Prime Minister between 2008 & 2016 was one of Krieger’s co-workers at the time this epic trade took place. He claims that Krieger was a pioneer and one of the few people at the time who really understood the markets like no one else did.
Following the extremely successful trade, Krieger continued to make big buy and sell orders on The Kiwi, around the $50 Million Dollars mark, this led to the New York branch of Bankers Trust to become the number one dealing room for NZD.
4 - Be aggressive in you're trading (but never over risk)
Despite his extremely successful period, Krieger soon left Bankers Trust as his salary and bonus for the year was a minor 1% of the profit from his Kiwi trade. Krieger went on to work for George Soros (picture below), a highly successful money manager. The Hungarian money manager known for breaking the Bank of England who is famous for one of the other single greatest trades of all time and perhaps the most famous example of a currency raid.
Of course, it helps to have the financial weight behind your trades like Krieger had, but this sort of success wouldn’t be possible without being well prepared, understanding markets deeply.
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