Editor's Note: This is a special guest column from Imre Gams, Editor of Currency Trader.
What's the world's largest market?
If you answered stocks or bonds, you're not alone.
The truth is, most folks have never heard of it… let alone considered trading it.
But the answer is the currency market.
Also known as the foreign exchange — or forex — market, it has daily trading volumes of about $7.4 trillion.
That's 32 times larger than the U.S. stock market.
It's no wonder some of the biggest trades of all time have taken place in forex.
These are trades that have netted hundreds of millions of dollars in profit.
One famous currency trade even hauled in more than $1 billion. (More on that below…)
And there's something interesting about these forex trading wins that you should know about.
Some of these trades took place when stocks were in a bear market, like they are today.
That's because the currency market and the stock market tend to move independently from each other.
As you'll see today, it's why forex trading is the perfect “escape hatch” for folks sick of losing money in stocks.
One Trader vs. the Kiwi
The first forex trade I want to bring to your attention was done by a friend and mentor of mine.
In 1987, he made millions for the firm he worked for, Bankers Trust, on a single currency trade.
And he took in this haul in one of the worst environments ever for stock market investors.
As you may recall, on Monday, Oct. 19, 1987, the Dow crashed 22.6%. To this day, it's the biggest one-day crash for the Dow in percentage terms.
The press dubbed it Black Monday.
This caused investors to flee the U.S. dollar and seek refuge in alternative currencies such as the New Zealand dollar — aka the kiwi.
At the time, the kiwi carried a relatively high yield. So investors kept piling in. And it kept going up versus the U.S. dollar.
But my mentor could see a boom-bust scenario developing. He said to himself, “This is a stupid situation. I don't believe the kiwi should be this strong.”
So he placed a monumental trade against it. His sell orders are rumored to have exceeded the entire money supply of New Zealand.
And it paid off…
He bet so heavily against it, the kiwi fell 10% in a day. That's a huge move for a currency.
And he hauled in $300 million for Bankers Trust — an unheard-of win at the time — right around the time that stock market investors were losing their shirts.
But even that gain paled in comparison to the one George Soros earned by betting on a falling British pound five years later…
Billion-Dollar Trade
In 1979, what's now the European Union introduced a new currency system.
Before this, European currencies floated freely against each other. But to encourage trade, Europe created a managed system to reduce exchange-rate volatility.
This meant the British central bank had to artificially prop up the value of the pound to keep up with the strongest currency in Europe, Germany's Deutsche Mark.
This meant raising interest rates to attract capital into the pound. And Soros saw this was causing too much pain for the British economy.
And in 1992, he pounced.
He bet heavily against the British pound, taking on the Bank of England in the process.
He figured the pound would tumble against the German currency if he applied enough pressure.
That's what happened. Following what's known in Britain as Black Wednesday, the pound fell as much as 30%.
Soros banked more than $1 billion on this trade.
Uncorrelated Markets
Each of these trades happened in completely different conditions.
Stocks crashed in epic fashion in 1987. By contrast, 1992 was a relatively good year for stock market investors.
And none of it mattered to currency traders. The currency moves they traded didn't depend on what stocks were doing.
That's why forex is my favorite market to trade. No matter what's going on with the stock market, there's always going to be an opportunity in forex.
And with everything the world's central banks are doing right now, it also means this is the best time to trade forex in 15 years…
Blazing Inferno
Central banks around the world are desperately fighting inflation. The key element in this fight involves raising interest rates.
And when capital rushes into currencies with higher rates and out of currencies with lower rates, this causes dramatic swings in currency values.
Since 2008, when central banks all dropped rates to zero at once, not much happened in the forex market. Sure, there were still trading opportunities… and you could still make money regardless of what happened to stocks…
But because all central banks were doing the same thing, there were few opportunities to make game-changing trades.
But that's changed. With central banks jacking up rates, and each economy facing its own problems with inflation and economic growth, the forex market is showing again that it's a great market to trade.
And the best thing is (from a trader's perspective), that fight won't end soon. So the opportunities to profit in forex trading are here to stay.
If you'd like to learn how to profit in forex, there's no better time than now.
That's why I'm hosting an urgent breakout session with master trader Jeff Clark on Feb. 9 at 8 p.m. ET.
We've put our decades of experience together to develop a unique strategy to capitalize on this opportunity.
The results so far have been spectacular. So far, out of the 21 currency trades I've recommended, 20 of them have been winners.
That's translated into thousands of dollars in profits for my readers.
Keep in mind, this can work for all traders regardless of skill level, experience, or even account size. So, if you want to see how trading forex can work for you, check it out right here.
Happy trading.
Imre
Before You Go: Remember that Jeff has agreed to give away exclusive bonuses totaling $4,000 to those who join us on the first night, Thursday, Feb. 9, at 8 p.m.
These bonuses are only available to folks who join our breakout session.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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