As Forex traders, we all hunger for that one big deal that is going to immortalize us among the gods of currency trading. It’s often good to draw inspiration from truly big traders with big ideas – not that we all have the resources to do the same, but it’s nice to dream.
Andy Krieger is just such a trading immortal.
Black Monday
Everyone who is familiar with the markets knows about Black Monday, that day back in 1987, on October 19th, when the Dow Jones dropped nearly 22%. Over the coming days, the rest of the world’s stock markets slid into decline, with most falling more than 20% by the end of the month. There was no single event which precipitated this – the fall is often attributed to a mass panic that fed on itself.
Guest post by FXTM
However, for one currency trader with Bankers Trust, there was no panic at all.
Introducing Andy Krieger
Krieger had come to Bankers Trust from Salomon Brothers in 1986, after having previously graduated from the Wharton School. He rapidly gained a reputation as one of the world’s most aggressive dealers, and had the full support of the board of Bankers Trust. Because of this, he had a trading limit of $700 million, as opposed to a more normal $50 million limit.
The attack
In the wake of Black Monday, Krieger became increasingly convinced that the New Zealand dollar was vulnerable to attack, and adopted an extraordinary approach to taking advantage of this. Because he had a huge trading limit and then could use high leverage on top of this by trading currency options – as high as 400:1 – he was able to bring a staggering amount of money to bear on the Kiwi dollar. In fact, his short position was so large that he claimed it exceeded New Zealand’s money supply. Let’s say that again – he controlled more New Zealand dollars than the number of New Zealand dollars in circulation.
The result
The reaction of the New Zealand dollar was immediate and catastrophic. The currency fell 5% against the greenback in a few hours, allowing Krieger to turn a profit of $300 million for Bankers Trust in a blink of an eye. As might be expected, the Bank of New Zealand was outraged, but Krieger’s arrogant response gives you a true measure of the man. He pointed out that Bankers Trust had not taken a position that was too large for it – instead, New Zealand was too small to be able to cope with the operations of Bankers Trust.
The aftermath
Krieger resigned from Bankers Trust in 1988, disgusted that he had only received $3 million for making $300 million for his employers. Bankers Trust then ended up having to restate their foreign exchange trading profits, possibly because they were unable to understand Krieger’s complex trading methods.
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