Bill Lipschutz: The "Sultan of Currencies" and What He Teaches Traders

Bill Lipschutz is an American currency trader who became known as the "Sultan of Currencies" after running Salomon Brothers' foreign exchange trading in the 1980s. Jack Schwager, who interviewed him for The New Market Wizards (1992), described him as Salomon's largest and most successful currency trader. He later co-founded the investment firm Hathersage Capital Management.

His career is widely studied because he talks openly about the mistakes that shaped him, starting with losing nearly everything before he was out of university.

Published figures for his profits and personal wealth vary widely and are not verified, so this guide sticks to what is documented in his interviews and in Schwager's book, and focuses on the lessons rather than the legend.

An inheritance, a fortune and a wipe-out

While studying at Cornell University, Lipschutz inherited a portfolio of shares worth roughly $12,000 from his grandmother. He threw himself into the markets, reading everything he could find, and over about four years grew the account to around $250,000, a remarkable result for a student.

Then he lost almost all of it in a short period, on positions he described as poorly managed. In interviews he has called the loss one of the most valuable experiences of his life, because it taught him that being right about markets is not enough: you also have to survive being wrong.

Salomon Brothers and the rise of currency trading

Lipschutz joined Salomon Brothers in the early 1980s, just as banks were building trading desks to take advantage of the floating exchange rates that followed the end of Bretton Woods. He moved into foreign exchange and became the principal trader for the bank's proprietary currency account, trading the firm's own money rather than clients'.

He traded mainly the big pairs of the day, especially the dollar against the yen and the German mark, often using options as well as spot and forward positions. The volatility of the mid-1980s, including the dollar's surge to 1985 and its fall after the Plaza Accord, created large opportunities for a desk willing to take positions. Schwager's interview shows a trader who thought constantly about how a position could go wrong and how to size it so that one bad call could not end his career.

How he thinks about trading

Several ideas from his interviews come up again and again among traders who study him:

• Know your exit before you enter. He stresses defining in advance what would prove the idea wrong, rather than deciding under pressure.
• Size matters more than entry. A good idea traded too large can still ruin you. He talks about reducing size when he is uncertain or on a losing streak.
• The market does not care about your position. Prices move for their own reasons, so a trader must adapt rather than argue.
• Most of the profit comes from a few trades. Being patient for the high-conviction ideas, and small or flat the rest of the time, matters more than being busy.
• Understand why a currency moves. He paid close attention to fundamentals and to how other participants were positioned, not only to charts.

None of these ideas is unique to him. What makes his interviews useful is that he explains them through his own losses, which makes them easier to believe than the polished rules many trading courses sell.

Why options mattered to his style

One feature that set Lipschutz apart was his heavy use of currency options. An option gives the right, but not the obligation, to buy or sell a currency at a set price by a set date. Buying an option caps the loss at the premium paid, while leaving the upside open, which suits a trader who wants to hold a big view without risking an unlimited loss if a central bank surprises the market.

Options also let a trader express more precise views: that a currency will move a lot, or barely at all, or that a sharp move is more likely in one direction than the other. In his interviews Lipschutz describes thinking about how prices might behave around events, not only which way they would go. That habit of thinking in scenarios, and asking what each one would cost, is useful even for traders who never touch an option.

For a retail trader the practical lesson is about defined risk. Whether you use options, a stop-loss or simply a small position, you should know the maximum you can lose before you enter. Lipschutz learned that the hard way at university; most traders learn it the same way.

After Salomon

Lipschutz left Salomon around 1990 and later co-founded Hathersage Capital Management, a firm focused on global macro and currency trading. He has given interviews over the years, including long podcast conversations in which he discusses trading psychology, risk and how the market changed as electronic trading took over from phone dealing. Few famous traders owe their reputation so completely to currencies.

What retail traders can take from him

• Treat early success with suspicion. A winning streak is often luck plus too much size, and it ends abruptly.
• Plan the exit first. Know where the idea is wrong before you click.
• Cut size when unsure, and after losses, rather than trying to win it back fast.
• Learn the drivers. Interest rates, central banks and positioning move currencies; charts show the result.
• Read the primary source. His chapter in The New Market Wizards is more useful than any summary, including this one.

Frequently asked

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