Stanley Druckenmiller made millions by opening two long trades in the same currency while working as a trader for George Soros’ Quantum Group of Funds. Druckenmiller’s first bet came at the start of the Cold War when the Berlin Wall fell in 1989. The perceived difficulties of reunification between East and West Germany had depressed the German currency, called the “Deutsche Mark” or DEM. He thought this level of depreciation was extreme. He initially put a multimillion-dollar bet on a future rally until Soros told him to increase his purchase to 2 billion Marks. Things played out according to plan and the long position came to be worth millions of dollars, helping push the returns of the Quantum Fund over 60%.
Possibly due to the success of his first bet, Druckenmiller also made the Deutsche Mark an integral part of the greatest currency trade in history. A few years later, in 1992, while Soros’ Quantum Fund was busy breaking the Bank of England, Druckenmiller was going long on the Mark on the assumption that the fallout from his Soros’ bet would drop the Great British Pound against the Mark.
Druckenmiller was confident that he and Soros were right and showed this by buying British stocks. He believed that Britain would have to slash lending rates, thus stimulating business, and that the cheaper Pound would actually mean more exports compared to other European rivals. Following this same thinking, Druckenmiller bought German bonds on the expectation that investors would move to bonds as German stocks showed less growth than the British. It was a very complex trade that added considerably to the profits of Soros’ main bet against the Pound.
The power of using currency to leverage other markets for capital gains is also prominent by other large entities today. As of May 2016 Stanley Druckenmiller’s net worth is $3.1 billion.