This article was first published on Orbex Forex Trading Blog.
October 19th 1987, will forever be known as ‘Black Monday’ – or the day the stock markets crashed across the globe. By the end of October 1987, panic had spread and most markets went spiraling down by 20%.
32-year old Andy Krieger carefully watched the currencies rallying against the US dollar, as an aftermath of the incident. He targeted the New Zealand dollar, believing it to be overvalued. He shorted it using leverage, earning $300 million for his company as a result.
Within a span of a few hours, New Zealand’s central bank had realized that Krieger held more of their currency then they did!
Early Life and Career
Andy Krieger graduated from the Wharton School of Business, Pennsylvania, after studying Sanskrit and Philosophy. In 1986, he joined the Bankers Trust, after working with Salomon Brothers. He quickly gained a reputation for being one of the most aggressive dealers in the market. Top management was so impressed that they allowed him a trading limit of $700 million, as opposed to the normal $50 million limit.
The Raid on the New Zealand Dollar
Just after the Black Monday crash, investors rushed to other currencies, dumping the US dollar in the process. Krieger knew that there would be some currencies that would be highly overvalued, creating good scope for arbitrage. He identified one of these currencies to be the New Zealand dollar, also known as the “Kiwi.”
As he had a fairly large trading limit, he used it to sell the Kiwi, with a leverage of 400:1. This amount exceeded even the actual circulating liquidity of the currency. Within a few hours, the currency went down 5% against the US dollar, and Andy Krieger ended up making $300 million for his company.
Krieger now controlled more Kiwi dollars than there ...
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