It was known as “Black Wednesday”. September 16, 1992. I was sitting in the offices of Rothschild Investment Bank in Singapore, managing their gold trading desk. For months, pressures were building “under the floor” of the British Pound as its inclusion in the ERM (European Rate Mechanism) and Britain’s desire to see their currency hold above 2.7 GBP to 1 Deutschemark was out of kilter with the fundamental differences between the health German economy and Britain’s economy with low growth and high inflation. Something had to give.
For some months, George Soros’s Quantum Fund had recognized the pressures building up and by August 1992 he had built a 1.5 billion Pound short position in the market, speculating that the fixed rate mechanism would not survive and the market would force a revaluation downwards of the Pound.
By September 16 Soros had built a 10 billion Pound short position.
It was late in Asia and London traders had just started to open for the day. Something big was going down. The currency brokers had the Pound/Mark bid at 500 pips above where the actual market was trading, and it was bid in huge size of minimum 100 million Pounds. Clearly that was the Bank of England trying to hold the currency up, yet the real market decided it was a lot lower. Something was very amiss. I called the traders at Rothschild London. It was clear that this currency was now an open window and was only going to move one way.
Compounding the weakness was the fact that despite the Bank of England not only bought 2 billion Pounds every hour in an attempt and support it, but they pushed rates way higher to 12%. Yet the currency failed to rally. It only emboldened the market to attack the currency furtherWith this being the case, I sold GBP/DM with the intention of seeing a once in a lifetime opportunity come my way. I was looking for somewhere between 1500 and 2000 pips with very little risk. I sold what was a large position back then relative to other trades and left a stop of 200 pips and my take profit in 2 lots of 1400 and 1800 pips for half of the position at each level. I then proceeded to go out to a nice dinner with my wife. And all I did was look at my price pager looking at almost every pip the thing was trading. When Stephanie asked me, “why are you looking at that thing all through dinner?” I replied with “I just need to know what is going on”.
We left dinner, and went back home. Just before I went to bed I called the broker and took 100 pips profit. My wife asked “why are you taking it back when you are looking for a huge move lower?”. I said “well I just want to take profit”.
I woke up and the market was 2000 pips lower. I felt sick. This is still the worst trading experience of my 25 years in the markets.
The lesson? Stick to your plan. There is no such thing as greed and fear. It is fear and fear. Fear of losing. But even more so, fear of missing out. I had no reason to cover that position, especially in light of what was going on. That was the last time I ever went against what I knew was a perfectly robust trade. The statistics do not lie. When you put so much work into this business, you are owed something back. Do not mess it up by staring at screens and doing something on a whim. This is a game of patience and grind.