Could This Be the Next Billion-Dollar George Soros Currency Trade?

It is an oversimplification to summarize George Soros' investment philosophy based on the theory of reflexivity into a single sentence, but it is useful to think of the theory as telling us that a trend will continue until it reverses.

Reflexivity also points out the direction of the trend can be influenced by underlying economic factors and the perception of traders and policy makers about the trend. That makes analyzing trends more complicated because we need to consider what policy makers might do and how traders will react in addition to prices.

The entire global economy might be thought of as a group of trends under the theory of reflexivity. What happens in the U.S. impacts Japan, for example, just as policies in Japan have an impact on the U.S. These impacts can be seen in exchange rates, a market in which Soros has demonstrated mastery. His most famous trade -- a bet against the Bank of England -- made him $1 billion in one day.

Recently, Soros said that after a period of remarkable stability in currencies, he expects to see "more fireworks, more volatility." Traders benefit from volatility because volatile markets are the ones that offer large gains in short periods of time.  (more)

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