George Soros / 1992 / Macro
The day a promise broke.
George Soros, sterling, and the limits of a central bank’s resolve.
Before the outcome was obvious.
A currency peg is a promise with a balance sheet behind it. In September 1992, Britain was trying to hold sterling inside the European Exchange Rate Mechanism. Quantum’s short position expressed a simple thesis: the economic cost of defending the exchange rate would eventually exceed the political cost of abandoning it. On 16 September, heavy intervention and announced rate increases failed to hold the line. Britain suspended its membership. The trade became famous for its size; the more useful question is why that promise had become so expensive to keep.
What could have gone wrong
The authorities could have defended the rate for longer. Funding costs, an adverse currency move and a forced reduction in exposure could have defeated a correct long-term thesis.
Study the constraint behind the commitment. A policy statement is only as durable as the willingness and capacity to enforce it.
Put the thesis to the test.
Change the assumptions and watch the arithmetic update. These are simplified scenarios; they do not recreate the instrument’s pricing or the path of the trade.
How this model works
Profit ratio = profit ÷ stated position. Exposure ratio = stated position ÷ fund assets. Neither is a measure of maximum loss or a net investor return.
The workbook’s simple annualisation is profit ratio × 365 ÷ duration = 219%. It is linear, not compounded, and is not a repeatable annual return. Fees, financing, collateral, premium carry and changing exposures are not modelled.
What these figures mean.
Source: Legendary Trades Models, Master Comparison!A4:L4; Trade P&L Models, case 1. The following are original workbook inputs, preserved for transparency. They are estimates, not independently audited results.
- Workbook position
- $10bn
- Workbook “gross profit”
- $1.8bn
- Workbook duration
- 30 days
- Workbook fund assets
- $15bn
- Workbook fund return
- 69%
- Workbook position ROI
- 18%
The fund-return field is a separate source claim, not a calculated result of this trade. Its reporting period and gross/net basis are not independently established here. Model ratios are recalculated from inputs rather than copied from rounded source ROI values.
Historical context: Bank of England · Operation of monetary policy, Q4 1992 ↗. This source supports the context discussed above; it does not validate every workbook input.