Top 5 Most Successful Forex Traders and Their Secrets
Every trader who plunges into Forex trading wants to become successful, but every trader’s path to success is different. While you can learn a lot from other traders’ success stories, you cannot exactly copy them because each trader has his/her own personality, trading goals, trading styles, and trading philosophies. You have to build your own road to success, but there is absolutely no harm in finding out how other traders made their millions.
The following are the stories of the top five most successful Forex traders and their secrets.
#1 George Soros
Born in Budapest in August 12, 1930, George Soros is a billionaire philanthropist and investor. He moved to the UK in 1947 and got a bachelor’s and a master’s degree in philosophy at the London School of Economics. He then embarked on an investment career by launching Double Eagle, his first hedge fund, in 1969. Later, Double Eagle changed its name to Quantum Fund. By 2011, Quantum Fund was managing assets worth $25 billion.
The Man Who Broke the Bank of England
Soros came to be known as the “man who broke the Bank of England (BoE)” when he made a $1 billion profit by short selling GBP worth US$10 million during the UK currency crisis of 1992, commonly referred to as Black Wednesday.
Soros had been building a large short position in GBP for several months before September 1992 because he had already understood the UK’s unfavourable position in the European Exchange Rate Mechanism (ERM). Soros realized that the UK had brought into the ERM for too high a rate. UK’s rates of interest were not doing the prize of their assets any good and the inflation was also three times more than that of Germany.
By September 16 in 1992, a day commonly referred to as Black Wednesday, Soros had short sold his fund for over $10 billion in pounds. He had taken full advantage of the UK’s hesitation in raising its rates of interest to the levels of other currencies on the ERM. When the UK finally withdrew from the ERM, the value of GBP collapsed, and Soros made a profit exceeding $1 billion. On the other hand, the UK Treasury lost £3.4 billion.
Soros made similar trades with Asian currencies during the Asian financial crisis of 1997 and his trades resulted in the fall of the Thai Baht. The profitability of these trades was due to the fact that the currencies the traders bet against were connected to other currencies. There were agreements in place to pump up the values of these currencies in such a way that they could be traded in a particular ratio against the currencies to which they were connected.
When the trades were finally made, governments had to purchase their own currency in the open market to maintain the ratio. When they faced a lack of funds, the governments had to give up, as a result of which the price of the currency fell.
Governments were terrified whenever Soros showed interest in their national currencies, because whenever he did so, a number of traders copied his trades in the hope of making a profit. Smaller governments were unable to deal with the situation because these traders were capable of borrowing and leveraging huge amounts of cash.
However, not all the bets Soros made worked in his favour. He lost nearly $300 million in 1987 when he predicted that the price of the USD would continue moving up. He also lost $2 billion when he made the wrong moves during the Russian debt crisis of 1998.
Soros’ Trading Philosophy
George Soros specializes in short-term trades. He is an expert in making huge, highly leveraged trades on the price movements of financial markets. Double Eagle, his hedge fund, is widely acclaimed for its philosophy of making huge, one-way bets on price movements of stocks, commodities, derivatives, bonds, and others. Soros bets that the prices of these assets will either rise or fall.
Soros calls his trading philosophy as “reflexivity.” Rejecting traditional trading ideas, Soros believed that it is the traders who directly influence the fundamentals of the markets and that price movements presenting profitable opportunities were the direct results of trader activities.
However, George Soros’ method of trading is tough and meant only for tough traders with a huge capital. Although the rewards of taking huge risks are great, the losses are great too. If you cannot handle the loss, you cannot trade like Soros.
Usually, international macro hedge fund traders remain silent about their profits and losses and avoid the limelight. But Soros is quite open about his profits and losses. Also, he does not hesitate to voice his opinions on political and economic issues.
Soros is, therefore, a trader who stands in his own class. Most of the trading decisions he took during the past 30 years turned out to be very profitable. He attracted huge crowds of investors and traders eager to learn his success secrets, copy his trades, and understand his trading philosophy. At the same time, he also made some bitter enemies.
#2 Bill Lipschutz
Bill Lipschutz, the director (portfolio management) and co-founder of Hathersage Capital Management, is one of the most successful Forex traders in the world. He also worked for Salomon Brothers as its Global Head of Foreign Exchange between the years 1981 – 90.
In October 2006, he was inducted into the Trader Monthly Hall of Fame. He also features in the books “The New Market Wizards: Conversations with America’s Top Traders,” authored by Jack D. Shwager in 1992 and “The Mind of a Trader,” authored by Alpesh B. Patel in 1997.
Born in New York in 1956, Bill Lipschutz was a good student who graduated in architectural design from Cornell University. He then got an MBA from the Johnson School of Management in France.
When he was studying architectural design in Cornell University, he spent several hours reading about the markets in the library. He got interested in financial trading and developed a portfolio that came close to $250,000.
In 1995, Lipschutz founded Hathersage Capital Management with friends he had made in Cornell University. This company is a global macro manager specializing in G10 currencies. Ever since the firm was founded, Lipschutz has been its director of portfolio management. Learning from all the mistakes of the past, he succeeded in building a Forex trading company worth $200 million.
Lipschutz has the following four Forex trading secrets to share:
- Be Attentive to Risk-to-Reward Ratios:When you are trading short term, you should trade positions where the potential reward is thrice the amount you are risking. In case of complex trades, in which you are risking a larger amount of capital, the risk-to-reward ratio should be at least 5 – 1. This means that your potential reward should be five times more the amount you are risking.
- Pay Attention to Detail:Lipschutz also talks about the importance of structuring trades to maximize profits. Even if the trade has a winning potential, one can easily lose money if one is not informed enough. For example, you can lose a lot of money even if you are a few seconds late in exiting or entering your trade. You have to do everything in your power to limit your risk, maximize your profits, and cut down your loss.
- Feel the Pulse of the Market:According to Lipschutz, you should be able to read the mind of the market. Ignoring market sentiments and perceptions could lead to huge losses. If a large number of traders feel that something important is on the verge of happening because that’s what their trading charts tell them, then the possibilities of something happening are high.
- Effort is Important:You have to think in terms of effort and hard work, not making profits. Obsession with profits gets in the way of making profitable trade decisions. Lipschutz says that top traders are intelligent people who are willing to put in a lot of hard work. A truly successful trader hardly sees the profits; instead he/she considers his/her balance as a scoreboard and the profit number as a score. Successful traders derive their satisfaction from the trading they do.
#3 Joseph C. Lewis
Joseph C. Lewis, a British investor and businessman, was born on Feb 5, 1937. Currently, he lives in New Providence, Bahamas. The Sunday Times rich list of 2019 mentions Lewis’ net worth as £4.358 billion.
Late in the 1970s, Lewis sold his family business and started currency trading full time. After the 1990s, he shifted to the Bahamas, where he still lives as a tax exile. Along with George Soros, he short sold GBPs during the days leading up to Black Wednesday. Many believe that he made more money than Soros himself.
Still an active Forex trader, Lewis spends a lot of time between his homes in Florida and the Caribbean. He socializes with sports, investment, and banking stars. Some of his closest friends are Sean Connery, the actor, and Ernie Els, the golfer. Although Lewis is not that interested in football, he owns most of Tottenham Hotspur.
Lewis is known for taking huge risks. He is believed to have made most of his money from Forex trading. His house in the Bahamas has screens in every room, displaying Forex prices.
Being a good friend of John Magnier and JP McManus, the horseracing tycoons of Ireland, he invested heavily with them on certain projects. In the 1990s, the three of them were involved in a project related to the sale of land to Telecom Eireann, a telecom company owned by the government. This project became the center of a political controversy. Allegations that the sale was made at inflated rates resulted in a government investigation, but nobody was booked for any wrongdoing.
Lewis might have made a huge fortune, but he has also tasted defeat. His attempts to acquire the Wembley Stadium, the offshore bookmaker Victor Chandler, and the auction house Christie’s had resulted in failure.
#4 Michael Marcus
Michael Marcus is famous for multiplying his company’s account by 2,500, which makes him one of the most successful traders in the history of Forex trading.
When he started out with Forex trading, he had absolutely no idea of trading principles. Things changed for the better when he met his trading guru Ed Seykota in October 1971. Seykota, who had just graduated from MIT, had developed a computer program to test and trade technical systems.
Marcus is of the opinion that the ability to trade is a gift, but actually making profitable trades is a skill that has to be learned. Traders need a lot of courage to take risks and hold on to their position. Stating that he seeks confirmation from fundamentals, market action, and charts, he says that a trader can use this method to trade anything in the world.
Marcus has the following lessons to share with aspiring traders:
- Understand Your Style:Every trader has to understand that he/she has a unique style. You may know a number of talented traders and be tempted to copy their style, but you must remind yourself firmly that you will lose if you do that. Since each trader has his/her own strengths or weaknesses, and if you copy someone, you are going to copy their weaknesses as well.
Marcus encourages traders to identify their best and worst points and develop a trading style that best suits their personality. For example, trading systems that follow trends are ideal for traders who are expert at holding winners.
On the other hand trading chart patterns is ideal for traders who are comfortable with many big wins and many consecutive small losses. Mild and highly disciplined traders can focus on the rare, top-quality trades. In brief, you should permit your personality to choose your trading style.
- Learn to Use Stop Loss:Using stop loss helps you cut down your losses and lock in your profits. It also forces you to exit your trade after a certain time. A number of beginners stop using the stop loss feature after they see many of their trades touch their stop loss limits and then continue to move in the desired direction.
If you have placed a stop loss at the correct level, you ought to respect it. If the price has touched your stop loss, continuing to hold your position will be risky. You should also have a stop in place in case of market catastrophes or unexpected news.
- Avoid Over Trading:You shouldn’t trade too much. Choose trades that have the right technical analysis, market fundamentals, and tone. The fundamentals should indicate imbalance of supply and demand, resulting in a major market move. The technical analysis should indicate that the market is moving in the direction that the fundamentals indicate. Finally, when the news breaks out, the market behaviour should reflect the proper psychological tone.
Instead of over trading in the hopes of locking in more profits, you must buy only trades that have the backing of several indicators and time frames. You need a lot of discipline to restrict yourself to a few high-quality trades, but you will find that it is very rewarding.
- Trade Markets You Understand:One of Marcus’ success secrets was that he stuck to markets he understood well. Although the markets he was comfortable with were less volatile, they were easy to predict. By trading markets he understood well, he could maximize his profits and decrease his risk. As far as possible, you should stay away from unknown territories and trade only markets you know.
- Learn to Manage Funds:Marcus never spent more than 5% of his capital on one trade. This way, even if you lose your trade over 20 times, you will not lose your entire capital. He stressed that this rule applies even to just one idea.
The above rules helped Marcus manage his risks better, withstand huge losses, and still continue to trade actively. They also helped him to recover his losses over a period time. If you risk more than 5% of your entire capital on a single trade, your entire account may be wiped out, forcing you to move away from trading in disappointment.
While purchasing a trade position, you must remember that even the best trading systems sometimes fail and the markets may not move in the direction you predicted. Learning to manage your funds is essential to avoid losing your entire capital on one trade.
#5 Stanley Druckenmiller
Born in Pittsburg, Stanley Druckenmiller is one of the most successful Forex traders in history. At the age of 28, he launched Duquesne Capital, which delivered high annual returns till it was shut down in 2010. In 1981, Druckenmiller re-opened the fund with a capital of $1 million and closed it with assets exceeding more than $12 billion. During these days, Druckenmiller achieved an annual ROI exceeding 30 percent per annum.
Druckenmiller was the man behind the trade that “broke the Bank of England.” It was Druckenmiller who realized that the Bank of England had a shortage of foreign currency reserves and was in no position to raise rates of interest without getting the pound into trouble. Druckenmiller, along with George Soros and many other traders, short sold the GBP, a move that resulted in UK’s exit from the EER. This profitable trade made Druckenmiller a profit of $1 billion.
This successful trader has several words of wisdom, trading strategies, and insights for aspiring traders as well as seasoned ones. For example, he believes in being aggressive even when one is making a profit. While most traders prefer to lock in their profits, Druckenmiller believes in aggressively holding on to profitable trades.
Druckenmiller also believes in optimizing success. While he believes in being aggressive while trading, especially when one has faith in the trade, he warns against excessive leverage. He says that over-leveraged trades can result in loss even for experienced traders.
He also warns traders to be cautious if valuation is one of the factors they considered while entering a trade. According to Druckenmiller, the most important factors to be considered are technical analysis and liquidity.
While valuation may inform traders the extent to which the market might move, the most important market catalyst is liquidity, and the only way to effectively detect liquidity is through exhaustive technical analysis.
Druckenmiller says that he developed his trading philosophy under the guidance of his friend George Soros, who declared that preserving capital is the only way to generate long-term returns. In turn, Soros got his trading philosophy from Warren Buffet who declared that the first rule is to never lose any money and the second rule is to never forget the first rule.
Druckenmiller was gifted with the ability to place big bets on the right opportunities. In this way, his trading style is similar to those of top traders such as Bruce Kovner, Warren Buffet, and George Soros. He was great at capital management too. But his best quality is his willingness to teach other traders and pass on his trading wisdom to them.
Conclusion – Can You Become a Successful Trader?
Can you become a successful trader? You certainly can, but only if you take it seriously. You should remember that trading can never be done as a hobby. There is nothing entertaining about trading. If you make the wrong moves, your entire capital could be wiped out. To become a successful trader, you need to do your research well and develop the qualities of diligence, focus, and objectivity.
Here are a few tips to help you become a successful trader:
- Develop Effective Trading Plans:A trading plan includes rules that govern money management, entries, and exits. Today, you can use software to test your trading plan before actually trying it out. This is a process known as back testing.
You can use back testing to apply your trading plans to historical data and conclude whether you can actually use your plan. When you have developed a good trading plan and used back testing to prove its worth, you can use it when you trade for real.
However, once you decide to use a plan, you have to stick to it no matter what. Deviating from the plan for any reason will simply destroy its efficacy.
Also, when you develop a trading plan, make sure that you based it on well-researched facts. Avoid creating a strategy based on someone else’s plan or your own hopes or emotions. Do not be in a hurry to create a trading plan. Instead, take the time to learn and process all the information available on trading websites. Accept the fact that you need to spend at least a year or two learning how to trade before you actually plunge into live trading.
- Trading is Business:Trading is not a job or a hobby. If you do not commit to it and learn from it, you can lose a lot of money. If you consider it to be your job, you will get frustrated as you will not earn any pay check from it. Instead, you should treat it like a business. And like any other business, it is associated with uncertainty, losses, expenses, risk, stress, and taxes.
If you have decided to become a trader, you have become the owner of a business. You should, therefore, do a lot of research and develop strategies to develop the potential of your business.
- Use Technology:Use trading tools such as charts, back testing, economic calendars, screeners, and others to improve your trading skills. You can also get price alerts delivered directly to your email address or smartphone so that you can monitor your trades on the move. Make sure that you have a fast Internet connection as it can great enhance your trading performance.
- Preserve Your Capital:Saving enough money to fund your online brokerage account takes a long time, which is why you should take all the required steps to preserve your capital. If you mismanage it and spend it all on the wrong trade, chances are that it may get fully wiped out and you may find it very difficult to raise so much money again.
Preserving your capital does not mean not to have any losing trade. In fact, even successful traders sometimes lose money in trades. However, preserving capital has a lot to with money management. Avoid putting all your eggs in one basket. Use only a small percentage of your total capital on a single trade and remember to use stop loss to cut down your losses and lock in your profits.
Avoid funding your online brokerage account with money you have set aside for something as important as education, groceries, or medical bills. Your trading capital should comprise only funds you don’t mind losing. In fact, you should be willing to lose all the money you put in your trading account.
- Study the Markets Well:You can never become a successful trader if you stop studying the market. In fact, your education as a trader will never end. You will find yourself continuously learning and updating your techniques and strategies.
You have to do continuous research to learn important facts and keep yourself updated on the latest events such as world finances, events, politics, and even the weather as all this can have an impact on the market.
- Don’t Forgot to Use Stop Loss:Stop loss is a feature that gives traders the chance to exit the trade when the price touches a certain level. It greatly helps minimize the risk of trading. The online broker will automatically exit you from a trade that has reached its stop loss limit. When you use stop loss, you know for certain that you will never lose more than the pre-determined amount on a trade.
Ignoring stop loss is a bad way to trade any market. If you exit the market on a stop loss, you will lose a specific amount of money, but you will still have made a great trade if you are following the rules of your trading plan.
You will naturally want to exit all trades on a profit, but this does not always happen. Using a stop loss protects your profits and cuts down your losses, thereby greatly minimizing the risks of trading.
- Stay Focused:You will have to focus on the bigger picture and avoid getting emotional while trading. Do not be surprised if you lose your trade in spite of all the research you did before entering it. Losing is a natural part of trading. On the other hand, if you win a trade, you will have made just one step towards success. What you need to see is your cumulative profits.
Learn to accept winning and losing as part of the business of trading Forex. Avoid having any hard feelings about it or losing sleep over it. Of course, you may get excited or even overexcited when you complete a successful trade. But you never know how the next trade will turn out.
You just have to realistic, practical, and level-headed when you trade. For example, if you have a small capital, you cannot expect to become a multi-millionaire overnight. Even if you get 10% return on a small capital of $10,000, it will be nothing like the 10% return on a six or seven-figure capital. Ultimately, your capital plays an important role in exactly how much you will profit or lose.
Finally, you should know exactly when to stop trading. When you realize that your trading plan is simply not working as you expected it to, you have to stop trading. Your trading plan might have lost efficacy because of deep changes within the market. You have to create a new trading plan or modify an existing one and back test it for efficacy.
Another reason to stop trading is when you realize that you are unable to follow your trading plan to the letter. You may not be able to stick to your plan because of multiple factors such as indiscipline, stress, and poor health. In this case, you have to take a break from trading till you solve your personal problems.
As soon as you solve your personal problems, you can resume trading. You will always find the markets waiting for you.