How to Trade Forex like Andy Krieger

If you are old enough, you will never forget Black Monday. On October 19th 1987, the financial markets plummeted, with the Dow Jones falling almost 22%. Panic spread around the world, with most markets down by more than 20% by the end of October. There was no one reason for this – in fact, the tumult in the markets became a self-fulfilling prophecy as investors ran for the doors.

However, for Andy Krieger, the end of the world was just another opportunity.

About Andy Krieger

At the time of the crash, Andy Krieger was known as one of the most aggressive currency traders in the world. After graduating from Wharton, he joined Salomon Brothers and then moved on to Bankers Trust in 1986. Despite his aggressive forex trading – or perhaps because of it – he rapidly gained the trust of the company’s board of directors. He was rewarded with a $700 million trading limit, far more than the usual $50 million limit given to most traders.

 Attacking the New Zealand dollar

As Krieger watched the aftermath of Black Monday unfold, he became aware of just how vulnerable the New Zealand dollar had become. He decided it was time to attack, and took a creative and unbelievably aggressive approach to taking down the Kiwi dollar. Not only did he have a $700 million trading limit, he also had access to huge leverage through currency options. With leverage as high as 400:1, he could bring unsustainable pressure to bear on New Zealand’s currency.

In fact, he created such a large short position that the Bank of New Zealand literally had no defence. After the fact, he claimed that his short position was so large that it was bigger than the entire New Zealand money supply. In other words, through his short position he controlled more Kiwi dollars than were actually in circulation. It takes nerves of steel and complete confidence to do something like that – and Krieger had both in abundance.

 The New Zealand dollar collapses

Krieger won his bet. Within a few hours of starting his attack, the New Zealand dollar plummeted 5% against the US dollar. Krieger walked away with an immediate profit of $300 million, which went directly into the coffers of Bankers Trust. The Bank of New Zealand was livid, but Krieger calmly pointed out that New Zealand was too small to cope with Bankers Trust’s trading operations – which shows his supreme level of arrogance.

 The exit

However, Krieger’s level of arrogance was also perhaps his own undoing. In 1988, he resigned his position as Bankers Trust. The reason was simple – the $3 million that he received for the currency trading coup was not enough in his opinion, and this left him disgusted with his employer. On the other hand, Bankers Trust struggled to understand the complexity – or perhaps deviousness – of Krieger’s complicated trading strategies, and in the end faced the unenviable task of restating their currency trading profits.

Krieger ended up going to work for George Soros – but that’s another story.

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