George Soros Trading Strategy Explained

[Music] many hedge funds deploy strategies that seem so elusive or complicated but regardless how complex they seem they must be based on the real world and its economies there was this investor hated by many people understands the world economy in a way better than even the countries themselves george soros has achieved impossible level of wealth by adhering to a set of philosophical ideas he developed these ideas while not yet proven by the academics are really not that hard to understand in this video we will talk about the essence of a strategy and study one of his famous trait how he broke the bank of england george soros is a short-term speculator this means he invests more or less like a gambler he makes massive highly leveraged bets on the directions of the financial markets his hedge fund is known for its global macro strategy a trading style centered around making large bets on the movements of currencies commodity prices stocks bonds and etc all based on macroeconomic analysis [Music] in his words soros says the objective is to write the economic trends whose premise is false and step up from it before it is discredited he refers to this philosophy behind his trading strategy as reflexivity in this view there isn't just one reality there are two forms of reality one that humans can influence and the ones that humans cannot sorrows believed that humans can never truly perceive reality therefore their actions are always biased one way or another as a result they might take actions that cause their subjective reality divert from the objective reality suppose a country's real estate market is expanding this caused people to perceive the real estate market better than it is the real estate developers built more houses further and further the amount of buildings produced outpaced the amount actually needed would then have a cycle in his view all economic activities have cycles soros believes that market participants irrational behavior leads to booms and busts that presents investment opportunities using the same analysis in 1992 george soros and a group of speculators broke the bank of england by forcing the british government to pull the pound from the european exchange rate commission burton entered the erm with the hopes of keeping its currency above 2.7 german marks to the pound this was fundamentally unsound mainly due to the fact that britain's inflation rate was many times of that of germany's you can think of it as the amount of cash added to britain's economy is faster than that of germany's by forcing the rate to be at 2.7 in retrospect is obviously a bad idea when british government decided to raise interest rates in order to stop the pressure on sterling i said to my partner now this is the wrong policy for the british government in the in the long term they cannot sustain this therefore you can sell any amount of sterling because it cannot be maintained so i said go for the jugular go for the kill [Music] in the early 90s britain's economy was in recession as a result they had to print more money to stimulate its economy this will inevitably cause the currency to depreciate however the british prime minister at that time john major kept insisting on keeping the sterling's position in the eu but starters thought that it was just a matter of time before the fundamentals economics took hold and forced them to depreciate the sterling he started to sell short of the pounds this caused the exchange rate of pound to depreciate violently as a counter measure the british government even used almost 26 billion dollars of currency reserve to prevent that from happening yet they couldn't stop the pounds from depreciating against many currencies consequently the british government gave in and withdrew from the erm once it became clear that it was losing billions of dollars [Music] i was only one of many market participants that was selling sterling so i did not really break the bank of england because if there weren't so many other people doing it it wouldn't have happened i just became identified as the embodiment of the financial markets you see soros made over 1 billion dollars from this trade this is equivalent to taking 12.5 pounds from every uk citizen at a time global macro strategy is hard for average investors to follow but it doesn't mean that we can't learn from star wars ways of speculating on certain financial assets like countries companies often exhibit irrational behaviors for example taking out more loans to fund risky projects you can then sell short of the company's stocks by buying a put option to see more content like this consider to leave a comment and subscribe you

Channel: FINAiUS

Views: 125,680

Keywords: George Soros, quantum fund, hedge fund, billionaires, Forex

Id: _MoPdNcQCeU

Length: 5min 47sec (347 seconds)

Published: Fri Sep 11 2020