George Soros Trading Strategies: Backtest, Setup, and Performance Analysis

George Soros’ approach to trading is as a short-term speculator, making highly leveraged bets on the direction of the financial markets based on market and macroeconomic analysis. In other words, Soros bets on the long or short direction of any market by studying the market movements, what other market participants are doing, and the actions of the government regulators.

“Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected.” This quote by George Soros captures his primary trading strategy.

Famously known as the man who broke the Bank of England, George Soros is widely considered one of the most successful traders and speculators of all time. His legendary hedge fund, the Quantum Fund, achieved an average annual return of 30% from 1970 to 2000. Who is he, and what’s George Soros’ trading strategy?

In this post, we look at this maverick investor and his life, career, trading philosophy, strategy, and trading rules.

Who is George Soros?

George Soros is a renowned hedge fund manager popularly known for his Quantum Fund, which has a great history of huge returns. He turned an original seed funding of $12 million into $20 billion by the first decade of the 21st century. To put it in perspective, if you had invested $1,000 in his Quantum Fund in 1969, you would have earned $4 million by 2000. That is an annual average growth rate of 30%!

In the trading and investing world, Soros is a revered name. He was named “the world’s greatest money manager” in 1981 by Institutional Investor magazine. In 1992, he was nicknamed “the man who broke the Bank of England (BOE)” following a trade he made that forced the BOE to change its policy.

Geroge Soros’ Early Life

George Soros is a Hungarian-born American born into a prosperous Jewish family in 1930.

Soros lived his childhood in Budapest, Hungary, where he was born on August 12, 1930. The arrival of the Nazis in Hungary in 1944 caused the family to split up to avoid being sent to concentration camps. After WWII, he made his way to England to study in 1947 at the London School of Economics. His stay in London helped to shape his concept and approach to the financial markets and philosophy to life. It was after reading Karl Popper’s tome, “The Open Society and Its Enemies,” that he first combined the concepts of science and politics which became the basis of his philosophy.

Soros began his business career by taking various jobs at merchant banks in the United Kingdom, including the London merchant bank Singer & Friedlander. In 1956, he moved to New York City, where he worked initially as an analyst of European securities and rapidly made his mark before starting his first hedge fund, Double Eagle, in 1969.

The journey into the financial markets

Soros’ first post-graduate job was with F.M. Mayer, a New York City money management firm. In less than 20 years, he had opened his first investment firm, Soros Fund, which allowed him to apply his science and free markets principles to investments and he was able to test them in the markets. He later changed the name of the fund to the Quantum Fund.

How did George Soros become rich?

Soros became rich from trading in the financial markets. He started his first hedge fund, Double Eagle, in 1969. With profits from this fund, he started Soros Fund Management, his second hedge fund, in 1970. Later, in 1973, Double Eagle was renamed Quantum Fund and became the principal firm Soros advised.

Soros’s knowledge of regional and global economic trends, combined with his deep pockets and tolerance for risk, has allowed him to amass a fortune now valued in the billions. At its founding, Quantum Fund had $12 million in assets under management, and as of 2011, it had grown to over $25 billion — the majority of Soros’s overall net worth.

While his daring investment decisions caused the funds to grow rapidly, not all his bets succeeded. For example, he correctly predicted the global stock market crash of October 1987, but he was wrong in predicting that Japanese stocks would fall hardest of all.

Soros has made many remarkable trades over the course of his hedge fund carrier that spanned many decades. But the few that earned him the legendary status included his bet against the GBP in September 1992, which led the British government to devalue the pound sterling, and the bet against the Thai currency (the baht) and other Asian currencies during the Asian crisis of the late 1990s. These trades made him billions of dollars.

Soros has also taken some big hits in his career. For example, in 1994, he speculated that the dollar would rise in value against the Japanese yen, but instead, the dollar fell all year, and the Quantum Fund reportedly lost hundreds of millions on a single day in February.

His funds also lost lots of money in some of his plays during the Malaysian currency crisis in the late 1990s, as well as in his bets against internet stocks. In fact, he capitulated shortly before the dot-com burst he had anticipated. This shows why short selling is so difficult (read here for the pros and cons of short selling). You can ultimately be right, but the timing is wrong, and thus face huge drawdowns.

What is George Soros famous for?

George Soros is well known as “the man who broke the Bank of England (BOE)” for betting heavily against the GBP and forcing the BOE to devalue the pound. He made a profit of $1 billion in a single day, Sept. 16, 1992, from that bet. Here’s how it happened, and this also explains his trading strategy and philosophy:

The man who broke the Bank of England

Then, Britain was part of the European exchange rate mechanism (ERM), a fixed-exchange-rate agreement that pegged the GBP against the German marks. Soros anticipated that Britain could not defend that peg for long, given its political and economic turmoil linked to a policy of higher interest rates, so he bet heavily against the GBP. With the use of leverage, he took a $10 billion worth of short position on the pound. After resisting the devaluation and defending the pound for some time, the BOE floated the pound, and its value crashed.

When the pound crashed, he repaid his lenders based on the new, lower value of the pound, pocketing in excess of $1 billion in the difference between the value of the pound and the value of the mark during a single day’s trading. He made nearly $2 billion in