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Who Are The Most Successful Forex Traders In The World?

Anyone embarking on a new venture in life needs some guidance and inspiration to set them on the right road. By reading about people who have successfully forged a path before us, we can gain confidence in our own future, and also pick up some useful advice along the way.

 

This is as true of the world of forex trading as it is of sport, politics, or any other field of endeavour. There have been some extremely successful forex traders over the years, even if they are not all exactly household names. Here’s a look at some of the best and most influential currency traders in history, and what we can learn from them.

 

George Soros

By most accounts, George Soros is undisputedly the most successful forex trader of all time. He was born in Budapest in 1930, and emigrated to England during the Nazi occupation of Hungary. He studied at the London School of Economics and embarked on a banking career. 

 

Soros worked for a series of merchant banks in London, before moving to the United States and starting his first hedge fund in 1969. In 1973, Soros established his own financial firm, Soros Fund Management, which became highly successful, making multi-billion-pound profits.

 

However, Soros will be forever known as “the man who broke the Bank of England”, after he sold 10 billion US dollars’ worth of pounds sterling during the Exchange Rate Mechanism (ERM) crisis of 1992, earning $1 billion.

 

This is the most classic example of why it pays to follow the economic news on a global scale to help you make good trading decisions. The ERM was a fixed exchange rate agreement between a coalition of European countries, which between 1990 and 1992 included the British pound sterling.

 

The other countries in the ERM wanted the UK to devalue the pound so that it stayed within the fixed parameters of the agreement.  However, the prime minister at the time, John Major, and the Chancellor, Norman Lamont, resisted the pressure.

 

Eventually, they were forced to withdraw from the ERM amid a market frenzy of buying and selling. The subsequent crash of the pound’s value came to be known as Black Wednesday. Forex traders such as Soros who had been following events closely made multiple rapid sales of the pound during the crisis, as the Bank of England was obliged to accept any offers.

 

Soros has claimed in interviews that he often follows a gut instinct when trading, which goes against much of the advice given to new traders. Some people believe that because Soros is so well informed about economics, he can rely on his existing knowledge of the market more than most people, which is why he is a seemingly instinctive trader.

 

The vast majority of traders will never reach this level of instinctive ‘gut reaction’ modus operandi. It is always a knowledge of the markets and technical analysis that will ensure steady success as a forex trader. Another point to bear in mind is that as a multi billionaire, Soros has a high-risk tolerance and can stand to make heavy losses if necessary.

 

For most traders, working out a risk management strategy to avoid incurring damaging losses should be a top priority. Soros is said to have a person fortune of £8 billion, and has given away a large portion of his wealth through his Open Society Foundations, which work to support humanitarian causes around the world. Certainly lots of food for thought.

 

Stanley Druckenmiller

Druckenmiller was born in Pittsburgh, USA, in 1953 and studied English and Economics and Bowdoin College in Maine. After graduating, he embarked on a financial career at the Pittsburgh National Bank. In 1988, he was employed by George Soros at the Quantum Fund. The two worked together to pull off the legendary $1 billion Bank of England (BoE) trade.

 

In rare interviews since, Druckenmiller has said that despite the stunning success of their strategy, neither of them was 100% that the pound sterling would fall at all, or by how much. However, what he did very much understand was the risk/reward ratio. This is a way to measure the potential of loss on a trade versus its potential profit.

 

Once you have calculated the potential risk and reward of a trade, you can then divide the risk by the reward to find the ratio. This gives you a useful method of deciding whether a trade is within your risk tolerance margin, and how much it is worth risking per trade.

 

In more technical terms, it is the difference between a trade entry point and a stop loss order and a take-profit order. A risk/reward ratio of less than one means that the investment carries a greater potential reward than a risk. A ratio greater than one means that the risk outweighs the potential reward.

 

Druckenmiller has said that he calculated a risk/reward ratio of 40:1 on the BoE trade, meaning that he knew there was the potential to make forty times more than he was risking. While this is no guarantee of profit, and risk/reward ratios do not take into account the odds of making a successful trade, it’s certainly a useful tool to have in your skillset.

 

Bruce Kovner

Bruce Kovner is an inspiration for those who are embarking on forex trading for the first time, after following other paths. He was born in New York in 1976, and studied political economy at Harvard. Despite being a high achieving student, he did not initially settle into a career, but had a series of jobs including a writer, cab driver, and political campaigner.

 

In fact, he not make his first trade until 1977, when he was 32 years old. He borrowed $3,000 on his MasterCard, and saw his trade grow to $40,000, before dropping to $23,000, at which point he made a sale.

 

Since this initial rather lucky gamble, Kovner learnt to take risk management very seriously, and forged a successful career by making well informed and objective trading decisions. He founded the highly respected Caxton Associates before retiring from forex trading in 2011.

 

Kovner’s career is an example of how a sound risk management strategy is the cornerstone to success in forex trading. His nerve racking early gamble paid off, but he was smart enough to realise that gambling doesn’t lead to consistent profits. Forex trading is not about the relentless pursuit of profit; rather it is the vigilant assessing of risk.

 

Good traders always know how much they can stand to lose on each trade, how much leverage is safe for them to work with, how to select the right position size and use stop loss orders, and how to calculate risk/reward ratios. On top of all this, they are aware of the importance of managing their emotions.

 

Trading the forex markets can cause even the most stoical personalities to be influenced by excitement, greed, fear, anxiety, or even boredom. By letting your emotions inform your trading decisions, you will end up making poor judgement calls. Most experienced traders use some method of overriding those ‘gut feelings’ and staying strictly objective.

 

Bill Lipschutz

Another highly successful and respected trader who learned about risk management the hard way is Bill Lipschutz. He was born and raised in New York, and began trading while studying at Cornell university. Early in his career, he made $250,000 from a $12,000 investment, but subsequently lost it all on another trade.

 

Many people would not recover from such a substantial loss, but Lipschutz doubled down on his determination to be a successful trader. He says that he has subsequently learnt to always focus on a 3:1 risk/reward ratio, i.e. a three dollar return for a one dollar risk.

 

During one interview he commented: “If you make any mistake in calculating the trading size and winning or losing trade, you may have to pay the price with your trading capital. However, it is also essential to understand the big picture of the market, which is a crucial element of price action trading.”

 

Lipschutz has also commented that the best traders have a sharp eye for detail, are highly focused with a strong work ethic, and understand the markets very well. He also seems to have learnt a powerful lesson from his early mistake, which was perhaps driven by overconfidence or greed.

 

He advises that while it is important to control the emotions, traders should never become numb to the pain of a loss, which can lead to a swift downward spiral.

 

He says: “When you go through a losing streak, all the self-doubts come out and you do get very reluctant to pull the trigger. There is nothing you can do that is right. Just every single thing you do is wrong.”

 

“That is something you just have to learn to control. You really have to learn how to control that fear. You have to feel the pain of a bad trade, or a wrong trade. If you don’t, and are numb to it, then it’s over.”

 

There is certainly a lot that anyone with a forex funded account can learn from studying the careers of these four inspirational traders.

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